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Post-graduation from the original sin problem The effects of investor participation on sovereign debt markets

Author

Listed:
  • José Antonio Ocampo
  • Germán D. Orbegozo
  • Mauricio Villamizar-Villegas
  • Nicolás Fajardo-Baquero
  • Oscar Botero-Ramírez
  • Camilo OrozcoVanegas

Abstract

We evaluate the effects of the sovereign debt structure by examining various degrees of bond market participation and diversification within different bond maturities and investor type. We use a unique Colombian panel dataset, comprised of all government bond maturities in the hands of public and private institutions during 2006-2018. For identification, we propose an instrumental variable approach, specific to each investor group. We find that an increase in non-residents’ market share of a 1 percentage point reduces bond yields by 35% and lowers volatility by 0.8%, relative to their mean values. Alternatively, we see an opposite effect for both pension funds and the banking sector. Finally, we find that market concentration makes local-currency yields more sensitive to global financial shocks. **** RESUMEN: En el presente estudio examinamos los efectos de la participación y concentración de títulos de deuda pública (TES) sobre su curva de rendimientos. Utilizamos datos panel para el caso colombiano con información sobre todas las madureces de los TES (pesos) en manos de entidades financieras tanto públicas y privadas durante el periodo 2006-2018. En los ejercicios empíricos proponemos un enfoque de variables instrumentales por tipo de inversionista: bancos, fondos de pensiones y extranjeros. Nuestros resultados indican que un incremento de un punto porcentual en la participación de extranjeros reduce el nivel y volatilidad de sus tasas en 35% y 0.8%, respectivamente frente a su nivel medio. Adicionalmente, vemos un efecto opuesto para los fondos de pensiones y para el sector bancario.

Suggested Citation

  • José Antonio Ocampo & Germán D. Orbegozo & Mauricio Villamizar-Villegas & Nicolás Fajardo-Baquero & Oscar Botero-Ramírez & Camilo OrozcoVanegas, 2020. "Post-graduation from the original sin problem The effects of investor participation on sovereign debt markets," Borradores de Economia 1113, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1113
    DOI: https://doi.org/10.32468/be.1113
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    Cited by:

    1. Villamizar-Villegas, Mauricio & Arango-Lozano, Lucía & Castelblanco, Geraldine & Fajardo-Baquero, Nicolás & Ruiz-Sánchez, María Alejandra, 2022. "The effects of Monetary Policy on Capital Flows A Meta-Analysis," Working papers 93, Red Investigadores de Economía.
    2. Arslanalp, Serkan & Eichengreen, Barry & Simpson-Bell, Chima, 2022. "The stealth erosion of dollar dominance and the rise of nontraditional reserve currencies," Journal of International Economics, Elsevier, vol. 138(C).

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    More about this item

    Keywords

    Term structure; bond market participation; bond market concentration; bond holdings; rendimientos de tasa de interés; participación y concentración de TES; tenencia de títulos de deuda pública;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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