The effect of non-resident investments on the French sovereign spread

Pierre Bui Quang ()
Additional contact information
Pierre Bui Quang: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: Cross-border investments in public debt securities are a key driver of sovereign yields. Everything else being equal, higher external demand lowers the cost of public financing through debt. However, from a financial stability perspective, it seems important to assess the resilience of sovereign debt against non-resident divestments, as cross-border flows tend to be volatile. Our paper adresses this issue for the French public debt. It relies on estimating the increase in yields that is necessary for the domestic financial sector to reallocate enough of its securities portfolio to compensate for hypothetical non-resident divestments. Our results indicate that if the share of non-residents in non-central bank holdings of French public debt had decreased regularly by an extra 1.25 pp compared to actual evolution, over the year from 2016-Q3 to 2017-Q3 (hence amounting to a 5 pp decrease in total), the sovereign yield would have been by around 40bp higher in 2017-Q3. Given the amount and the maturity of gross debt issuances over this period, and using the German bund yield curves for discounting, the corresponding extra cost for public finances in 2017-Q3 would have been around 6Bn €.

Keywords: government bond yields; external debt; investor base; home bias; portfolio choice (search for similar items in EconPapers)
Date: 2018
Note: View the original document on HAL open archive server: https://hal.science/hal-04141676
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-04141676/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04141676

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().