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OECD Sovereign Borrowing Outlook 2017

image of OECD Sovereign Borrowing Outlook 2017

The OECD Sovereign Borrowing Outlook provides regular updates on trends and developments associated with sovereign borrowing requirements, funding strategies, market infrastructure 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 and which distribution channels are being used. This edition provides data, information and background on sovereign borrowing needs and discusses funding strategies and debt management policies for the OECD area and country groupings. In particular, it examines: gross borrowing requirements; net borrowing requirements; central government marketable debt; interactions between fiscal policy, public debt management and monetary policy; funding strategies, procedures and instruments; liquidity in secondary markets; implications of a low interest environment for government debt; and the outlook of inflation linked bonds.

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Implications of a low interest rate environment for government debt markets

A low interest rate environment seems to have become the norm in OECD countries, reflecting a variety of factors. Among them, central banks in major advanced economies lowered policy rates close to zero, or even below, and several also implemented unconventional policy measures in response to the global financial crisis and deteriorating real activity outlook. While volumes of sovereign debt trading at negative yields surged to record levels in 2016, some sovereign debt management offices were (and still are being) paid for issuing their domestic government bonds. The persistent ultra-low interest rate environment has had a number of significant effects on volumes and structures of government debt markets in recent years. Lower interest rates have improved debt dynamics and eased funding of government debt. Declining long-term bond yields – reaching negative territory in several OECD countries – have raised concerns about secondary market liquidity. This chapter discusses the potential challenges arising from the ultra-low interest rate environment for government debt markets, as well as developments regarding the investor base and duration risks.

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