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Is the supply of long-term debt independent of the term premia? Evidence from Portugal

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  • António Afonso,
  • Manish K. Singh

Abstract

An important assumption in the statistical analysis of the nancial market effects of the central bank's large scale asset purchase program is that the `long-term debt stock variables were exogenous to term premia'. We test this assumption for a small open economy in a currency union over the period 2000M3 to 2015M10, via the determinants of shortterm financing relative to long-term nancing. Empirical estimations indicate that the maturity composition of debt does not respond to the level of interest rate or to the term structure. These ndings suggest a lower adherence to the cost minimization mandate of debt management. However, we nd that volatility and relative market size respectively decrease and increase short-term financing relative to long-term nancing, while it decreases with an increase in government indebtedness. Key Words : sovereign debt management, long-term interest rate, portfolio balance channel, Bank of Portugal

Suggested Citation

  • António Afonso, & Manish K. Singh, 2016. "Is the supply of long-term debt independent of the term premia? Evidence from Portugal," Working Papers Department of Economics 2016/11, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp112016
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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