Working Paper: NBER ID: w30087
Authors: Xiang Fang; Bryan Hardy; Karen K. Lewis
Abstract: This paper studies the impact of investor composition on the sovereign debt market. We construct a data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over twenty years. Private non-bank investors absorb disproportionately more sovereign debt supply than other investors. Moreover, non-bank investor demand is most responsive to the yield. Counterfactual analysis of emerging market sovereigns shows a 10% increase in debt leads to a 6.7% increase in costs, but an out-sized 9% increase if non-bank investors are absent. We conclude that these sovereigns are vulnerable to losing non-bank investors.
Keywords: sovereign debt; investor composition; borrowing costs
JEL Codes: F34; F41; G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased sovereign debt (H63) | nonbank investor holdings (G23) |
| presence of nonbank investors (G21) | borrowing costs (H74) |
| absence of nonbank investors (G21) | borrowing costs (H74) |