Private Bond Research Articles

International spillovers of conventional versus new monetary policy

We use a calibrated open-economy New Keynesian model to compare the spillovers from conventional and new monetary policy shocks from the US to Canada. We find that shocks with similar effects on the US GDP affect Canada’s private bond yield differently. For example, a forward guidance shock increases Canada’s private bond yield by 0.15%, however a quantitative easing (QE) shock decreases it by 0.13%. Our counterfactual policy simulations for the 2008 crisis show that (1) a more aggressive QE by the Fed would have resulted in a milder recession in the US but a steeper one in Canada. (2) If the Bank of Canada had followed the Fed’s QE policies, the drop in Canada’s GDP would have been much smaller. (3) Finally, if the Fed had implemented a mild negative interest rate policy, the effects on the Canadian economy would be similar to those of the benchmark zero-rate policy.

Forecasting the Future Value of a Colombian Investment Fund with LSTM Recurrent Neural Networks (LSTM)

Forecasting the Future Value of a Colombian Investment Fund with LSTM Recurrent Neural Networks (LSTM)

COVID-19 and Role of Data Science for Anti-Corruption

Corruptions prevail in various forms. Many governments have adopted e-governance system to control corruption. According to the Transparency International-2021, Corruption Perceptions Index (CPI) becomes higher when there are political instabilities. CPI for Afghanistan is 16 while for Bhutan it is 68 South Asian countries. Corruption negatively impacts both public and private bonds. Many corrupted people thrive well at the cost of infrastructure. E-governance allows citizens to monitor the activities of government directly through computers, smartphones, and the Internet. Maintaining transparency will help the government and public more accountable. In developing countries like Nepal where all aspects of the government have not been digitalized, e-governance may not solve all the problems. The quantity of numerical data is growing in parallel with the digitalisation of our social and economic activities. Big data is considered to be the “new oil" of AI. AI/ML is that it can pore through vast quantities of data in a short time, and can enable users to detect anomalies more quickly and accurately, make predictions and/or find meaning in high volumes of data. The data of CPI is analyzed 2018-2021 of South Asian countries by ANN, AI and ML. Algorithms have been proven to be highly accurate by academic literature. algorithm was able to predict with more than 90 percent accuracy whether there was corruption or not based on the data that was available.

Public land, value capture, and the rise of speculative urban governance in post-crisis London

The capture of value from public land has emerged as a central concern in recent scholarship on urban financialization. Drawing on the case of local authority housing companies in London, this paper explores why and how the local state is engaging in an increasingly speculative mode of land development, and with what effects. By conceptualizing state-led value capture as a political technology of risk management that operates across scales, I develop two key arguments. First, I argue that struggles over the allocation of the risks and costs of public debt have shaped local authorities’ speculative engagement with land. Unlike the case of US municipalities that are structurally reliant on private bond markets, I show how local authorities’ growth politics have been underwritten by the central state and accelerated by budgetary austerity. Second, I argue that this translocation of risk at the scale of the local gives rise to a form of state power organized around the allocation, production, and constant monitoring of financial and political risks. The politics of risk that underpin municipal experiments in state-led value capture combine an embrace of uncertainty and value expansion, with the principles of austerity budgeting, downscaling, and retrenchment. Ultimately, the effects of this form of state intervention are a heightening of uneven development, an exacerbation of local fiscal crisis, and a weakening of democratic governance.

The role of pension funds in capital market development in the new EU member states: An empirical panel cointegration approach

AbstractThe main goal of this paper is to analyse the impact of pension funds on capital market development in 11 new EU member states from Central and Eastern Europe using annual data for the period between 2000 and 2019. Given the geographical, institutional, political and economic differences across these countries, we split them into three homogenous groups: Balkan, Baltic and Visegrad countries. We use three different variables as a proxy for capital markets growth: stock market capitalization, the value of stock traded, and private bond market capitalization. We apply dynamic and fully-modified ordinary least squares to examine the relationship between the variables. The empirical results indicate that pension funds have a positive effect on the bond markets growth in all sub-groups but they do not impact the stock market growth in the Balkan and Baltic countries.

ASSESSMENT OF THE RELATIONSHIP BETWEEN MARKET-BASED FINANCIAL SYSTEM AND GROSS DOMESTIC PRODUCT PAR CAPITA, KENYA.

This study assessed the relationship of market-based financial system development indicators and Gross Domestic Product par capita in Kenya. for the period running from 1997 to 2007. The Gross Domestic Product was as low as 1.2% in the first macroeconomic stability in the period running from 1997 to 2001 and was as high as 7.0% in the second macroeconomic stability in the period running from 2002 to 2007. Data capture was by census technique and checking of secondary material on Kenya National Bureau of Statistics(KNBS), Nairobi Security Exchange(NSE), and Capital Market Authority(CMA), Data analysis and interpretation was through descriptive statistics and inferential statistics. The financial indicators of a market-based financial system were characterised as size, activity and efficiency indicators. Stock market capitalization/GDP, private bond market capitalization/GDP, public bond market capitalization/ GDP were size indicators. Stock market total value traded / GDP was activity indicator. Stock market turn- over ratio was efficiency indicator. This study was in relation to literature review which depicts some financial indicators as being counterproductive to each other and in their contribution to GDP per capita. In the first macroeconomic stability (1997-2001), the bank based financial system was79% against 21% of the market based financial system. In the second macroeconomic stability (2002-2007), the bank based financial system was 54% against 46% of the marked based financial system. Financial indicators (Public bond capitalization Ksh.bn/GDP, Market Capitalization Ksh.bn/GDP, turnover ratio and total value traded) as significant predictor of GDP per capita and significantly correlated to GDP par capita in Kenya.

A brief analysis of investment alternatives

Bearing in mind the growing dynamism of the market, this article arose from the need to identify investments in the financial market that provide capital gain and profitability, as idle money does not change people’s economic situation. In this context, the following guiding question arose: what are the investment alternatives available in the Brazilian market that provide capital gain and profitability? In this way, the objective is to briefly report some investment alternatives, namely: public bonds, private bonds, shares, investment funds and savings. For this, the bibliographic review was adopted as a methodology. As a result, it was observed that saving allows the accumulation of unspent income. However, the investor who hopes to gain more value by making his resources available in the market should opt for other alternatives, such as government bonds, private bonds, shares and investment funds. However, although the earning alternatives are varied, in some of them, the exposure to risk is greatly increased, which constitutes a challenge for the selection of securities and other assets in which to invest. Finally, the analysis presented indicated that investment alternatives to obtain capital and profitability gains must observe certain premises, such as: investment liquidity; the calculation formula to decide in fraction of a second; the feasibility of acquiring or selling assets.

Illiquid investments and the non-monotone relationship between credit and growth

Mounting evidence suggests a non-monotonic relationship between finance and growth: increases in credit over GDP lead to increases in growth at diminishing rates, and after a point growth decreases. We propose a theory based on liquidity risks that delivers this result. Our theory features a tension between the high return to capital and its illiquid nature. This tension is alleviated by the availability of credit. Initially, further access to credit offsets the detrimental effects of illiquid capital, facilitating investment and growth. Beyond some threshold however, expanded access to credit induces private bonds to compete with capital as a means of savings, which becomes detrimental to growth.

Safe Assets

Abstract This paper investigates the quantity of safe assets. First, we estimate that the average safe-asset ratio (ratio of safe to total assets) in 34 OECD countries was 37% in 2015. Further, we document that this ratio is relatively stable over time. Second, we build a heterogeneous-agent model with rare disasters and risk aversion coefficients that accounts for (i) the average level of the safe-asset ratio; (ii) the stability of this ratio over time; (iii) the observed risk-free rate of around 1.0% per year; and (iv) the empirical unlevered equity premium of about 4.2%. The model also replicates the observed highly concentrated distributions of wealth and equity. Finally, Ricardian equivalence holds in our model: issuing additional government bonds has no effect on rates of return and the net quantity of safe assets. Surprisingly, the crowding-out coefficient for private bonds with respect to public bonds is around −0.5, a value found in empirical studies.

QE in the euro area: Has the PSPP benefited peripheral bonds?

The Public Sector Purchase Programme of the euro area, PSPP, which started in 2015, constitutes an interesting special case of Quantitative Easing (QE) because it involved the purchase of peripheral euro area government bonds, which were clearly not riskless. Moreover, these purchases were undertaken by national central banks at their own risk. Intuition suggests, and a simple model confirms, that, ceteris paribus, large purchases by a central bank of the bonds of its own sovereign could increase the risk for the remaining private bond holders – if this purchase occurs within a monetary union where the national central banks have no autonomy left. Our empirical analysis suggests that risk premiums on peripheral bonds did not follow a random walk, contrary to what is assumed in event studies, implying that the announcement effects might not have been permanent. We find that the announcements of bond buying (and its implementation) did not change the stochastics of these premiums and had a smaller impact on CDS spreads which provide another measure of risk.

Financial Reporting Comparability in US Firms Issuing Debt in the US Primary Market

We propose a novel method of measuring the comparability of reported accounting numbers from the perspective of creditors. We demonstrate the validity of the measure and show that new bond issues of firms with superior comparability have better credit ratings and reduced bond yields, ceteris paribus. This is commensurate with comparability reducing the information uncertainty surrounding credit risk assessments derived from a firm’s financial information. Comparison of the impact of comparability on public and private bond issues suggests that the impact of comparability is greater in the public market, which we suggest is due to the presence of uninformed investors and higher reputation costs for the rating agencies.

Monetary policy and long‐term interest rates: Evidence from the U.S. economy

AbstractThis paper addresses the ability of central banks to affect the structure of interest rates. We assess the causal relationship between the short‐term Effective Federal Funds Rate (FF) and long‐term interest rates associated with both public and private bonds and specifically, the 10‐Year Treasury Bond (GB10Y) and the Moody's Aaa Corporate Bond (AAA). To do this, we apply Structural Vector Autoregressive models to U.S. monthly data for the 1954–2018 period. Based on results derived from impulse response functions and forecast error variance decomposition, we find: a bidirectional relationship whenGB10Yis considered as the long‐term rate and a unidirectional relationship that moves from short‐ to long‐term interest rates whenAAAis considered. These conclusions show that monetary policy is able to permanently affect long‐term interest rates and the central bank has a certain degree of freedom in setting the levels of the short‐term policy rate.

Does Borrowing from the Private Bond Market Cost More than Borrowing from the Public Bond Market?

We investigate the pricing of private versus public placement bonds in the primary market and test the effect of covenants on yield spreads. The yield spread premium of 116 basis points is partially explained by credit risk but equally important, by covenants. We provide evidence of a U-shape effect of covenant intensity on spread, the downward sloping part explained by investment covenants, the upward sloping part by financing covenants. The use of covenants has as much explanatory power beyond credit risk as liquidity and market conditions together, providing direct evidence of firm’s willingness to pay for options providing renegotiation flexibility.

Uang Fiat dan Operasi Pasar Terbuka: Tinjauan Ekonomi Islam

This article aims to discuss monetary policy in Indonesia, namely Open Market Operations (OPT) on Islamic economics perspective. OPT known as the monetary instrument, which most often used to achieve policy objectives. In general, monetary targets aimed to stimulate the economic growth and inflation stabilization. OPT’s policy products included Bank Indonesia Certificates (SBI), Sharia Bank Indonesia Certificates (SBIS), Bank Indonesia Wadiah Certificates (SWBI), Government Securities (SUN), Sukuk, Private Bonds, Rupiah Interventions (IR), and Loan Facilities Bank Indonesia (FASBI) which is traded on the money market; the primary market and the secondary market with an auction system. Currently, All OPT products based on fiat money. The buy and sell system of OPT products uses a discount system and interest rates. Money plays an important role in the economy, so the policy of monetary contraction and expansion of the amount of money circulating in society will affect the velocity of money. With a descriptive analysis, this article analyzes the role of fiat money from the perspective of Islamic economics. This article argues that the three schools of thought in Islamic economics agree that the function of money used as a means of transaction, investment, and precaution. As an exchange style, money unable to be used as a means of future speculation. Thus, the Islamic economy views that underlying of Islamic monetary policy based on the productivity of the real sector and oriented to the welfare of society.

Do Remittances Enhance Financial Development in Transitional Markets?

The paper explored (1) the impact of remittances on financial development and (2) whether the interaction between remittances and human capital development had an influence on financial development in transitional economies using the dynamic GMM approach, with data ranging from 1996 to 2014. Remittances were found to have had a non‑significant positive influence on financial development in transitional economies when stock market turnover, stock market value traded, domestic credit to the private sector by banks, and public bond sector development were used as measures of financial development. When stock market capitalisation, domestic credit to the private sector by financial sector, and private bond sector development were used as measures of financial development, remittances had a non‑significance negative effect on financial development. Using all other measures of financial development except stock market capitalisation (which produced a negative sign), the interaction between remittances and human capital development had an insignificant positive influence on financial development. Transitional economies are therefore urged to avoid over‑relying on remittance inflow and human capital development as sources of financial development.

The Development Stage of Bond Market in Mongolia among Asian Countries

This paper aims to address the issue on bond market development by investigating the determinants of bond market development with a focus on Asian economies, and also by identifying the impediment factors to prevent its development in Mongolian economy. This paper contributes to the literature by enriching evidence of the determinants of bond market development with a focus on Asian economies with common characteristics such as their high dependence on banking sectors. In particular, while there have been few studies on an individual economy’s bond market, the strategic contribution is to identify the Mongolia-specific factors to prevent her bond market development among Asian economies. The estimation result shows that the two manageable variables, namely, bureaucracy quality and level of interest rate, are major determinants for both public and private bond market development in Asian economies, and also that these determinants are main factors to prevent the Mongolian bond market from developing.

A Macroeconomic Model with Bond Liquidity

This paper considers a two-country macro model where private bond can serve as financial liquidity. With incomplete markets, higher bond liquidity leads to higher growth from more efficient financing of investment opportunities, but also generates higher instability by increasing equilibrium leverage and worsening the undercapitalized country’s terms of trade. Numerical experiments, based on a parameterized version of the model, show that welfare cost from instability can outweigh gains from higher growth. In particular, bond liquidity reduces welfare in economies with low fundamental volatilities and low credit market frictions, as leverage and hence stationary distribution in such environments are more sensitive to interest rate changes. In terms of macroprudential regulations, bond liquidity can significantly relax the optimal tightness of leverage constraints, while also moderately increase the optimal tax on credit. Lastly, this paper distinguishes between public and private liquidity, and explores the model’s fiscal policy implications.

Micro and Macroeconomic Determinants of Indonesian Government’s Bonds Liquidities in the Secondary Market (2012-2016)

Despite having registered the trade volume since 2005, Indonesia's bond market trading and liquidity level in the secondary market are still the lowest in Asia. Neighboring countries like the Philippines and Singapore started registering trading volume records in the same year as Indonesia has exceeded the liquidity level of the Indonesian market. This raises the question of what makes the rate of development in Indonesia's bond market not as fast as other countries in Asia. Therefore, this article aims to analyze the determinants of liquidity in the secondary market of Indonesian bonds, especially government bonds. In the case of Indonesia, research on government liquidity is still limited. Various studies have been conducted to determine the factors affecting liquidity and also the method to calculate them but mostly focus on private bonds. This research uses the level of liquidity of bonds based on turnover ratio as a dependent variable and variable of maturity rate, coupon rate, exchange rate, stock price index, and lending rate as independent variables. The method used is multiple linear regression. The results show that the liquidity of 10-years benchmark government bonds in Indonesia is significantly influenced by the coupon rate and lending rate positively but influenced by the exchange rate and stock price index negatively. These results indicate that liquidity is influenced by macroeconomic variables. Thus, the Indonesian government should monitor macroeconomic indicators closely and change policy related to its bonds accordingly.

The Effect of a Government Reference Bond on Corporate Borrowing Costs: Evidence from a Natural Experiment

Researchers have recently studied the interactions between corporate and government bond issuances within many countries. Some conclude that government bonds compete with private bond issuances, while others maintain that government bonds provide valuable reference entities that improve the private sector’s ability to issue its own bonds. We study the special case of China’s 2017 issuance of two sovereign bonds denominated in U.S. dollars (USD). We find that USD-denominated Chinese corporate bonds experienced a decline in yield spreads, bid-ask spreads, and price volatility around the time of this sovereign issues’ announcement. The yield spread changes are particularly large for corporate bonds with maturities similar to those of the USD sovereigns. We conclude that these new bonds serve as useful reference instruments, helping investors to price and hedge the risks impounded in Chinese corporate bonds.

The Impact of Financial Sector Development on Foreign Direct Investment: An Empirical Study on Minimum Threshold Levels

Using panel data of 21 emerging economies, the paper investigates the financial sector development threshold levels that would influence foreign direct investment (FDI) inflows. The threshold levels we identified are 41.27% of stock market capitalization for stock market turnover, 53.55% of gross domestic product (GDP) for stock market value traded, 121.53% of GDP for stock market capitalization, 114.43% of GDP for domestic credit to private sector by banks, 144.06% of GDP for domestic credit provided by financial sector, 0.22% of GDP for outstanding domestic private debt securities and 41.26% of GDP for outstanding domestic public debt securities. Our results show that higher stock market and banking sector development above the threshold level positively and significantly influence FDI inflows whilst the influence of lower stock market and banking sector development on FDI inflows was weak and not significant. Levels of private bond market development equal to or greater than the threshold level are found to have a positive but non-significant impact on FDI inflows whilst private bond market development levels less than the threshold have a weaker positive and non-significant influence on FDI inflows. On the other hand, public bond market development levels equal to or greater than the threshold level negatively influenced FDI inflows whilst levels of public bond market development less than the threshold positively but non-significantly attracted FDI inflows into emerging markets.