DP3789 Government Bonds in Domestic and Foreign Currency: The Role of Macroeconomic and Institutional Factors

Author(s): Stijn Claessens, Daniela Klingebiel, Sergio Schmukler
Publication Date: February 2003
Keyword(s): currency structure, foreign currency debt, government bond markets, government debt, sovereign bonds
JEL(s): F21, F33, F34, F36, G15, G18
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3789

The development of government bond markets and, in particular, their currency composition have recently received much interest, partly because of their relation with financial crises. This Paper studies determinants of the size and currency composition of government bond markets for a panel of developed and developing countries. We find that countries with larger economies, greater domestic investor bases and more flexible exchange rate regimes have larger domestic currency bond markets, while smaller economies rely more on foreign currency bonds. Better institutional frameworks and macroeconomic fundamentals enhance both domestic currency bond markets and increase countries? ability to issue foreign currency bonds, while they raise the share of foreign exchange bonds.