OECD Sovereign Borrowing Outlook 2013
Each year, the OECD circulates a survey on the borrowing needs of member countries. The responses are incorporated in the OECD Sovereign Borrowing Outlook to provide regular updates of trends and developments associated with sovereign borrowing requirements and debt levels from the perspective of public debt managers. The Outlook makes a policy distinction between funding strategy and borrowing requirements. The central government marketable gross borrowing needs, or requirements, are calculated on the basis of budget deficits and redemptions. The funding strategy entails decisions on how borrowing needs are going to be financed using different instruments (e.g. long-term, short-term, nominal, indexed, etc.) and distribution channels.
Accordingly, the OECD Sovereign Borrowing Outlook provides data and information on borrowing needs and funding policies for the OECD area and country groupings, including gross borrowing requirements, net borrowing requirements, central government marketable debt, funding strategies and instruments and distribution channels.
Outlook for sovereign stress
This chapter deals with the complications for issuers generated by the pressures of perceptions of an increase in sovereign stress, in particular whereby the market suddenly perceives the debt of some sovereigns as risky. The borrowing environment for governments has become even more difficult than before due to the complications generated by sudden shifts in sentiment and perceptions of risk associated with certain sovereigns: the so-called swings in the risk-on and risk-off trades.A lack of consensus on how to measure and price sovereign risk is an important obstacle in assessing sovereign stress. This also complicates assessing changes in the supply of safe public assets. Since the track-record of sovereign risk pricing is not very impressive, suggested market measures of this risk (including ratings) should be treated with great caution. One should, therefore, be very cautious in concluding that the sovereign debt of an OECD country has indeed lost its risk-free or ultra-safe status. Moreover, rating downgrades for several OECD sovereigns and changes in borrowing rates give conflicting signals. This also means that downgrades and their implications for the supply of safe sovereign assets should not be taken at face value but more carefully scrutinised. Concerns over a possible euro area breakup resulted in fragmentation between sovereign funding markets. However, stresses in European sovereign debt markets have been reduced, in part due to important recent policy initiatives such as the announcement by the European Central Bank of its Outright Monetary Transactions (OMTs) programme. As a result, convertibility risk (redenomination risk) associated with fears of a possible euro breakup was diminished.