OECD Sovereign Borrowing Outlook 2012

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OECD governments are facing unprecedented challenges in the markets for government securities as a result of continued strong borrowing amid a highly uncertain environment with growing concerns about the pace of recovery, surging borrowing costs, sovereign risk and contagion pressures.

The OECD Sovereign Borrowing Outlook provides estimates for 2011 and projections for 2012. Higher than anticipated gross borrowing needs of OECD governments are expected to reach USD 10.4 trillion in 2011 and USD 10.5 trillion in 2012, including a strong increase in longer-term redemptions in 2012. Against this backdrop government debt ratios are expected to remain at high levels.

Raising large volumes of funds at lowest cost, with acceptable roll-over risk, remains therefore a great challenge for a wide range of governments, with most OECD debt managers continuing to rebalance the profile of debt portfolios by issuing more long-term instruments and moderating bill issuance.

Additional challenges for government (and corporate) issuers are the complications generated by the pressures of a rapid increase in sovereign risk, whereby “the market” suddenly perceives the debt of some sovereigns as “risky”, as well as euro area-induced contagion effects. Growing concerns among investors have resulted in the offloading of significant holdings of European debt.



Changes in issuance procedures and techniques

Issuance conditions have become tougher with sometimes weak demand at auctions (lower cover ratios) and greater auction tails reflecting relatively unsuccessful auction results. This chapter explains that many debt management offices had at times to adjust their issuance procedures and techniques so as to cope with unprecedented volatility, increased competition in raising funds and (potential) market absorption problems. The chapter also provides an overview of changes made in issuance procedures and the introduction of new distribution channels. It also concludes that maintaining a diversified investor base has become more important than before.



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