Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies
Asset allocation decisions of international investors are at the core of capital fl ows. This paper explores the impact of these decisions on long-term government bond yields, using a quarterly investor base dataset for 22 advanced economies over 2004‒2012. We fi nd that a one percentage point in...
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University of Warsaw
2016-06-01
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| Series: | Journal of Banking and Financial Economics |
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| Online Access: | https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1073&context=jbfe |
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| author | Serkan Arslanalp Tigran Poghosyan |
| author_facet | Serkan Arslanalp Tigran Poghosyan |
| author_sort | Serkan Arslanalp |
| collection | DOAJ |
| description | Asset allocation decisions of international investors are at the core of capital fl ows. This paper
explores the impact of these decisions on long-term government bond yields, using a quarterly
investor base dataset for 22 advanced economies over 2004‒2012. We fi nd that a one percentage
point increase in the share of government debt held by foreign investors can explain a 6‒10
basis point reduction in long-term sovereign bond yields over the sample period. Accordingly,
international fl ows to core advanced economy bond markets over 2008‒12 are estimated to have
reduced 10-year government bond yields by 40‒65 basis points in Germany, 20‒30 basis points
in the U.K., and 35‒60 basis points in the U.S. In contrast, foreign outfl ows are estimated to have
raised 10-year government bond yields by 40‒70 basis points in Italy and 110‒180 basis points
in Spain during the same period. These results suggest that changes in the foreign investor base
for sovereign debt can have economically and statistically signifi cant effects on sovereign bond
yields, independent of other standard macroeconomic determinants of bond yields. |
| format | Article |
| id | doaj-art-867edcb90ddb43e4a16f076a554ff0f7 |
| institution | Kabale University |
| issn | 2353-6845 |
| language | English |
| publishDate | 2016-06-01 |
| publisher | University of Warsaw |
| record_format | Article |
| series | Journal of Banking and Financial Economics |
| spelling | doaj-art-867edcb90ddb43e4a16f076a554ff0f72025-01-02T23:16:33ZengUniversity of WarsawJournal of Banking and Financial Economics2353-68452016-06-0120162(6)456710.7172/2353-6845.jbfe.2016.2.3Foreign Investor Flows and Sovereign Bond Yields in Advanced EconomiesSerkan Arslanalp0Tigran Poghosyan1International Monetary Fund, USAInternational Monetary Fund, USAAsset allocation decisions of international investors are at the core of capital fl ows. This paper explores the impact of these decisions on long-term government bond yields, using a quarterly investor base dataset for 22 advanced economies over 2004‒2012. We fi nd that a one percentage point increase in the share of government debt held by foreign investors can explain a 6‒10 basis point reduction in long-term sovereign bond yields over the sample period. Accordingly, international fl ows to core advanced economy bond markets over 2008‒12 are estimated to have reduced 10-year government bond yields by 40‒65 basis points in Germany, 20‒30 basis points in the U.K., and 35‒60 basis points in the U.S. In contrast, foreign outfl ows are estimated to have raised 10-year government bond yields by 40‒70 basis points in Italy and 110‒180 basis points in Spain during the same period. These results suggest that changes in the foreign investor base for sovereign debt can have economically and statistically signifi cant effects on sovereign bond yields, independent of other standard macroeconomic determinants of bond yields.https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1073&context=jbfegovernment bond yieldsinvestor baseinterest rate determinants |
| spellingShingle | Serkan Arslanalp Tigran Poghosyan Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies Journal of Banking and Financial Economics government bond yields investor base interest rate determinants |
| title | Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies |
| title_full | Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies |
| title_fullStr | Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies |
| title_full_unstemmed | Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies |
| title_short | Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies |
| title_sort | foreign investor flows and sovereign bond yields in advanced economies |
| topic | government bond yields investor base interest rate determinants |
| url | https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1073&context=jbfe |
| work_keys_str_mv | AT serkanarslanalp foreigninvestorflowsandsovereignbondyieldsinadvancedeconomies AT tigranpoghosyan foreigninvestorflowsandsovereignbondyieldsinadvancedeconomies |