1. Coming to Terms: The Politics of Sovereign Bond Denomination
Cameron Ballard-Rosa, UNC Chapel Hill
Layna Mosley, UNC Chapel Hill
Rachel Wellhausen, UT Austin

2. Motivation How do governments access sovereign bond markets?
Outcomes matter for borrowing costs, as well as for future policy.
Especially in times of crisis, terms of borrowing affect governments’ room for maneuver.
Primary markets: best location to observe strategic choices regarding sovereign borrowing.
BMW1: effect of political institutions & global capital market conditions on borrowing (access as well as amount)
This paper: terms on which governments borrow.
Motivation: governments aren’t price takers

3. “Original sin?”

4. Theory
Governments have preferences regarding not only when and how much to borrow, but also how:
Currency denomination
Debt maturity
Yield (interest rate)
Governments may be willing to trade off across debt terms strategically.
Government ideology matters
Leftwing government prefer issuing in domestic currency
Rightwing governments prefer issuing in foreign currency

5. Our sample
Issue level data, for (nearly) all sovereign issuers,
237,916 bonds total
Maturity > 1 year: 98,659 bonds
97 non-OECD countries
With baseline controls, we have ~8,000 observations across 97 countries
With full controls, we have ~6,500 observations across 77 countries
With inclusion of government ideology, we have ~4,000 observations across 54 countries.

6. Our data
First check: is currency driven by “macroeconomic creditworthiness”?
DV: Issuance in foreign currency (% total value) by country-month
Model controls:
Baseline: GDPpc, change GDP, Current account, KAOpen, External debt, UST 10yr
Full: Trade, CBI, Regime duration, Pegged XR, Oil rents, IMF prog., Inflation crisis, Debt crisis
Main finding: Inflation crisis associated with significantly more foreign issuance
More debt (and debt crises) associated with less foreign issuance

7. Partisanship by decade

8. Currency composition and government ideology

9. Tradeoffs across terms: Additional analyses
Longer maturity associated with more foreign issuance
True with or without control for ideology
Higher yields associated with more domestic issuance
But this effect is not as pronounced when maturity is also included

10. Robustness
Results hold with linear, quadratic, or cubic time trend; as well as when we split the sample by time.
Also hold with year fixed effects
Find similar results using OLS or Heckman selection mode
Robust to additional controls: credit rating, FDI inflows, MSCI category
No effect found in the non-democratic subsample

11. Debt Management Offices (DMOs)
Have begun original data collection effort to code DMO features
We focus on 3 characteristics:
DMO location (Central Bank, Ministry of Finance, Autonomous)
Whether DMO has sole authority to manage government debt
Whether other government agencies can issue debt
In our data:
42% of observations have no data (yet!) for DMO.
6.5% locate DMO in CB
42% located DMO in Min. Fin.
10% located autonomously
Among those with DMOs, autonomous DMOs issue significantly more in domestic currency
Consistent with a “professionalization” story

12. Future research Tradeoffs across terms
Use IRT model to capture latent “cost” dimension across currency vs maturity vs yield
Can generate at the issue level (~240,000 issues in dataset)
Further incorporate political dynamics surrounding DMOs
Complement vs substitute for CBI? Fix XR?
Partisan preferences for DMO autonomy?

13. Extras

14. Amount issued by partisanship