The Maturity of Sovereign Debt Issuance in the Euro Area
Frank de Jong,
Massimo Giuliodori and
No 13729, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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 preference for liquidity services of 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 non-repayment risk as captured by credit default spreads are the most important source of shocks.
Keywords: euro-area public debt auctions; expected repayment probability; liquidity services of short debt; Maturity; risk aversion; yield curve (search for similar items in EconPapers)
JEL-codes: E62 G11 G12 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eec, nep-mac and nep-upt
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