The Maturity of Sovereign Debt Issuance in the Euro Area

Roel Beetsma, Massimo Giuliodori, Jesper Hanson and Frank de Jong

No 13729, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use information on new sovereign debt issues in the euro area to explore the drivers behind the debt maturity decisions of governments. We set up a theoretical model for the maturity structure that trades off the preference for liquidity services provided by short-term debt, roll-over risk and price risk. The average debt maturity is negatively related to both the level and the slope of the yield curve. A panel VAR analysis shows that positive shocks to risk aversion, the probability of non-repayment and the demand for the liquidity services of short-term debt all have a positive effect on the yield curve level and slope, and a negative effect on the average maturity of new debt issues. These results are partially in line with our theory. A forecast error variance decomposition suggests that changes in the probability of non-repayment as captured by the expected default frequency extracted from credit default spreads are the most important source of shocks.

Keywords: Maturity; Euro-area public debt auctions; Yield curve; Liquidity services of short debt; Risk aversion; Expected repayment probability (search for similar items in EconPapers)
JEL-codes: E62 G11 G12 G18 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-bec, nep-eec, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: The maturity of sovereign debt issuance in the euro area (2021)
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