Domestic Debt Market Research Articles

The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets

"Volume 2007 (2007): Issue 127 (Jun 2007): The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets" published on 01 Jun 2007 by International Monetary Fund.

The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets

We develop a new public domestic debt (DD) database covering 93 low-income countries and emerging markets over the 1975-2004 period to estimate the growth impact of DD. Moderate levels of non-inflationary DD, as a share of GDP and bank deposits, are found to exert a positive overall impact on economic growth. Granger-causality regressions suggest support for a variety of channels: improved monetary policy; broader financial market development; strengthened domestic institutions/accountability; and enhanced private savings and financial intermediation. There is some evidence that, above a ratio of 35% percent of bank deposits, DD begins to undermine growth, lending credence to traditional crowding out and bank efficiency concerns. Importantly, the growth contribution of DD is higher if it is marketable, bears positive real interest rates and is held outside the banking system. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Domestic Debt Markets in Sub-Saharan Africa

This study discusses the role of domestic debt markets in sub-Saharan Africa (SSA) based on a new data set covering 27 SSA countries during the 20-year period 1980-2000. The study finds that domestic debt markets in these countries are generally small, highly short term, and often have a narrow investor base. Domestic interest payments present a significant burden to the budget, despite much smaller domestic than foreign indebtedness. The use of domestic debt is also found to have significantly crowded out private sector lending. Finally, the study identifies significant differences among the size, cost, and maturity structure of domestic debt markets in heavily indebted poor countries (HIPCs) and non-HIPCs.

Domestic Debt Markets in Sub-Saharan Africa

This study discusses the role of domestic debt markets in sub-Saharan Africa (SSA) based on a new dataset covering 27 SSA countries during the 20-year period 1980-2000. The study finds that domestic debt markets in these countries are generally small, highly short-term in nature, and often have a narrow investor base. Domestic interest payments present a significant burden to the budget, despite much smaller domestic than foreign indebtedness. The use of domestic debt is also found to have significantly crowded out private sector lending. Finally, the study identifies significant differences between the size, cost, and maturity structure of domestic debt markets in HIPCs and non-HIPCs.

Domestic Debt Markets in Sub-Saharan Africa

This study discusses the role of domestic debt markets in sub-Saharan Africa (SSA) based on a new dataset covering 27 SSA countries during the 20-year period 1980-2000. The study finds that domestic debt markets in these countries are generally small, highly short-term in nature, and often have a narrow investor base. Domestic interest payments present a significant burden to the budget, despite much smaller domestic than foreign indebtedness. The use of domestic debt is also found to have significantly crowded out private sector lending. Finally, the study identifies significant differences between the size, cost, and maturity structure of domestic debt markets in HIPCs and non-HIPCs.

Whither the Emerging Markets' Currencies?

The authors look into the fiscal and monetary options available to the governments of emerging countries to manage both their economies and their currencies. Having first observed that Argentina9s government has struggled to sell its T-bills to a largely captive domestic debt market, that the Brazilian real is down more than 20% since January, and that, in the rest of the world, there is doubt about Asia9s economic prospects and Turkey9s commitment to reform, they suggest that, taken together, these events raise the prospect of financial contagion spreading across the emerging markets and that the root of many problems can be traced to the organization of these countries9 monetary system. Describing and evaluating the consequences of currency policies centered on devaluation, pegging the home currency to an external yardstick or to currency boards, they offer an intriguing analysis concluding that emerging markets would avoid the speculative attacks related to capital outflows if they did not have a central bank and adopted some other country9s monetary policy.

Banks, Domestic Debt Intermediation and Confidence Crises: the Recent Brazilian Experience

This paper examines the recent evolution of the Brazilian public domestic debt and interprets it in light of the confidence crisis literature. The analysis of the recent developments in the Brazilian public domestic debt market shows that the likelihood of a default must not be assessed only using simple summary aggregate measures of public domestic debt size and maturity, but must also take into consideration other structural aspects. Our analysis emphasizes the two main pillars of the Brazilian public domestic debt market: home-bias and the role of the banking sector in intermediating the debt. Evidence from yields of a perfectly indexed bond shows that the rollover premium was very small when the devaluation occurred, and is still fairly small by October, 1999, indicating that the rollover of the public domestic debt has not, so far, constituted a serious problem. Positive prospects for the public domestic debt market will depend, however, on the Brazilian government maintaining the current fiscal austerity program.

The Convertible Debt Market: Are Returns Worth the Risk?

Convertible bonds made up about 6 per cent of the almost $700 billion total corporate domestic debt market at the end of 1987. Non-investment-grade (high-yield) convertible debt accounted for 67 per cent of the rated convertible debt issued that year, but only 48 per cent of the market in dollar terms. The high-yield convertibles overall were not as high-yielding as their straight debt counterparts; companies issuing convertibles obviously pay a lower interest rate in exchange for the conversion sweetener. Convertibles provided a fairly good return to investors over the 1983-87 period-slightly above the returns on the S&P 500 and NYSE and slightly below those on high-yield straight debt and long-term governments. The strong correlation between convertible returns and stock returns was reflected in the exceptional performance of convertible bond funds over the 1978-87 period, when they almost doubled the performance of high-yield straight debt and long-term government funds. They did less well, however, over the more recent three and five-year subperiods. In the case of default, convertible bonds, like straight debt, sell at significant discounts from par value. Over the 1980-87 period, total convertibles, including both high and low grades, had an average default rate of 1.24 per cent per year (including Texaco's massive Eurobond default), versus 0.32 per cent for total straight debt. The recovery rate after default was also lower for convertibles than for straight debt (36.4 per cent of par, versus 43.2 per cent). The average annual loss on the total convertible debt market was thus higher than that on the total straight debt market (0.69 per cent, versus 0.16 per cent). The average annual default loss on high-yield convertibles, however, was 1.75 per cent (versus 1.17 per