Abstract: Securitisation issuance has slumped in recent years, with the market having become increasingly dependent on central bank and government support in both Europe and the United States. Despite facing a number of threats that could inhibit a recovery in the shorter term, the securitisation market is expected to recover over a longer term horizon. Funding costs have improved, but investor confidence in the asset class remains weak, and the impact of regulatory reform is as yet difficult to fully assess. A long-term sustainable recovery for the securitisation market remains in the hands of regulators and policy makers. They must be awake to the possibility that a recovery in securitisation markets could be a prerequisite to unlocking credit markets in general and supporting a wider global economic recovery.

Abstract: The borrowing requirements of African governments in financing their budget deficits are increasingly met by selling marketable instruments but also by the issuance of non-marketable debt in the form of bi-lateral, multilateral and concessional loans. The second edition of the OECD Statistical Yearbook on African Central Government Debt provides comprehensive quantitative information on African central government debt instruments, including both marketable and non-marketable debt. Individual country data are presented in a comprehensive standard framework to facilitate cross-country comparison.

Abstract: OECD governments are facing ongoing challenges in the markets for government securities as a result of continued strong borrowing amid concerns about the pace of recovery and sovereign risk. The third OECD Sovereign Borrowing Outlook† Raising large volumes of funds at lowest cost, with acceptable roll-over risk, remains a great challenge for several countries, with most OECD debt managers continuing to rebalance the profile of debt portfolios by issuing more long-term instruments and moderating bill issuance. provides revised estimates for 2010 and projections for 2011. Gross borrowing needs of OECD governments are expected to reach almost USD 17.5 trillion in 2010, up from an earlier estimate of almost USD 16 trillion. In 2011, the borrowing needs of OECD sovereigns are projected to reach almost USD 19 trillion, nearly twice that of 2007. Against this backdro,p government debt ratios are expected to further deteriorate. An additional challenge for government issuers is how to deal with the complications generated by the pressures of a rapid increase in sovereign risk, whereby “the market” suddenly perceives the debt of some sovereigns as “risky”. JEL Classification: G14, G15, G18, H6, H60, H62, H63, H68 Keywords: sovereign borrowing, public deficits and debt, roll-over risk, sovereign risk.

Abstract: New restrictions on short-selling sovereign debt need to be supported by concrete evidence that links systematically unrestricted short-selling activities to fraud, abuse or market manipulation. OECD debt managers noted that there is plenty of empirical evidence on the benefits of short selling, including more liquidity, pricing efficiency and better allocated risk. However, solid evidence in the form of empirical data on market instability unambiguously caused by unrestricted short-selling activities (to be counted as ‘costs’) seems to be lacking. Debt managers also noted that the reporting requirements will be costly from a purely administrative point of view. A ban on uncovered short selling transactions of sovereign debt would make risk management more difficult and expensive, with detrimental effects on market efficiency, liquidity and funding costs for sovereigns. Moreover, it is unlikely that such bans would have a stabilising effect in government securities markets during a crisis. Rather than containing the crisis, a ban on short selling of government debt is likely to worsen the situation. The paper concludes that OECD debt managers have a range of tested tools at their disposal for dealing with temporary or chronic dysfunctional measures in sovereign debt markets, ranging from ‘quantity measures’, such as openings, to ‘pricing measures’ such as dynamic fails charges. JEL Classification: E44, G01, G21, G28, E61, H21. Keywords: financial regulation, short-selling, restrictions on short-selling, debt management, risk management, sovereign debt.

Abstract: Tougher issuance conditions related to the surge in government borrowing needs are the reasons why issuance arrangements have not always been working as efficiently as before the crisis. This prompted debt management offices (DMOs) in the OECD area to review existing issuance policies and procedures. The crisis also had an impact on the use of indicators or guidelines relating to the key risks of the maturity structure of issuance or outstanding debt. Although OECD issuance procedures are likely to differ considerably at the level of technical standards and detailed institutional arrangements, increased integration of global financial markets has encouraged the standardisation of financial instruments and convergence of general issuance procedures. As a result, OECD issuance policies and procedures are broadly similar with a high degree of transparency and predictability. However, in response to tougher issuance conditions, DMOs have implemented changes in existing issuance procedures and policies that may have led to a somewhat greater diversity of primary market arrangements and procedures. The paper also reviews strategies and indicators for the management of the debt portfolio. Although issuance procedures and targets for portfolio management may have become somewhat more opportunistic in some jurisdictions, debt managers continue to emphasise the importance of transparency and predictability.

Abstract: Discussions at the 11th OECD-WBG-IMF Global Bond Market Forum focused on four key areas: i) the impact of crisis-related measures and the potential implications of exit; ii) the measurement of sovereign risk; iii) the determinants of investor demand; and iv) debt managers’ response to the crisis. Overall, participants felt that the steps taken to stabilise financial conditions had generally been effective and that conditions in financial markets were normalising. However, discussions highlighted a number of ongoing risks including: i) while credible consolidation plans were needed, fiscal and monetary policy would be tightened too soon; ii) managing investor uncertainty would prove critical in managing risk in the near-term; and (iii) regulatory changes might lead to a deterioration in conditions in primary and secondary markets and otherwise aggravate the challenges facing debt managers. JEL Classification: G15, G18, G20, G24, G32, G38, H62, H68 Keywords: Outlook on public deficits and government debt, crisis and debt management policies, government debt market, measurement of sovereign risk, investor demand, exit strategy

Abstract: The borrowing needs of African governments are increasingly met by issuing marketable debt instruments. Leading practices from OECD governments exert an important influence on debt management and the functioning of markets for sovereign debt instruments. This first issue of the Statistical Yearbook on African Central Government Debt provides comprehensive and consistent information on African central government debt instruments. It includes individual country data but also comparative statistics to facilitate pan-African (cross-country) analysis. JEL Classification: G2, G28, H63 Keywords: African borrowing needs and debt instruments, public debt management, Statistical Yearbook on African Central Government Debt

Abstract: As part of its Borrowing Outlook, the OECD estimates gross short– term government borrowing requirements. The article concludes that all methods for measuring short-term borrowing needs studied here – except one – provide either significantly underestimated or substantially overestimated measures. The article therefore suggests adopting the following measure: Gross Short-Term Marketable Borrowing Requirements is equal to Net Short-Term Borrowing Requirements plus the outstanding amount of the stock of short-term instruments. This new measure (referred to as Method 2 in the study) yields, in principle, meaningful estimates, comparable across different countries. JEL Classification: G15, G18, H63, H68. Keywords: measuring gross short-term borrowing requirements, debt

Abstract: OECD governments are facing ongoing, unprecedented challenges in raising smoothly large volumes of funds at lowest possible cost, while balancing refinancing-, repricing- and interest rate risks. Amidst continued uncertainty about the pace of recovery as well as the timing and sequencing of the steps of the exit strategy, gross borrowing needs of OECD governments are expected to reach almost USD 16 trillion in 2009, up from an earlier estimate of around USD 12 trillion. The tentative outlook for 2010 shows a stabilising borrowing picture at around the level of USD 16 trillion. A looming additional challenge is the risk that when the recovery gains traction, yields will start to rise. Although there are signs that issuance conditions are becoming tougher, most OECD debt managers have been successful in financing the surge in funding needs. Less successful auctions can therefore best be interpreted as “single market events” and not as unambiguous evidence of systemic market absorption problems. The future could become more challenging though, given that rising issuance is occurring in tandem with increasing overall debt levels and debt service costs. In response, sovereign debt managers, with the essential support of the fiscal authorities, need to implement a timely and credible medium-term exit strategy to avoid future "crowding out" and systemic issuance problems, while reducing government borrowing costs.

Abstract: Many OECD governments are facing unprecedented challenges in the markets for bonds and bills, as a result of the explosive growth in their borrowing needs. Amidst an unusually uncertain economic outlook, the gross borrowing needs of OECD governments are expected to reach almost USD 12 trillion in 2009. The key policy issue is how to raise smoothly new funds at low cost, while also managing a rapidly growing debt stock. For the time being, several factors are offsetting the trend towards higher yields. But the risk is that when the recovery gains traction and risk aversion falls, yields will start to rise. There are already signs that issuance conditions are becoming tougher with reports of weaker demand at some recent government bond auncts. Thus far, these less successful auctions can best be interpreted as "single market events" and not as unambiguous evidence of systemic market absorption problems. Also from this perspective lowering OECD sovereign ratings is not obvious. The future could become more challenging, given that rising issuance is occurring in tandem with increasing overall debt levels. Also contingent debt is on the rise. In response, sovereign debt managers have begun to plan or implement credible medium-terms exit strategies to avoid future "crowding out" and issuance problems. Although fund raising strategies have become more flexible and somewhat more opportunistic, OECD debt management framework so as to minimise medium-term borrowing costs. The other key challenge, roll-over risk as a result of the increasing use of short-term instruments, is being addressed by OECD debt managers by rebalancing the profile of their issuance programmes by incorporating more long-term instruments.

Abstract: The Tenth OECD/World Bank/IMF Annual Global Bond Market Forum highlighted that liquidity is a complex concept with different dimensions – micro liquidity vs. macro liquidity, market liquidity vs. funding liquidity, endogenous vs. exogenous liquidity, and so on. Relative liquidity (including ‘liquidity freezes or squeezes’) can best be explained by focusing on the market’s institutional structure, in particular the architecture of electronic trading platforms, the importance of OTC trading, the nature and width of the investor base, disclosure requirements, valuation methods, the role of primary dealers including market-making requirements or conventions, tax factors, and the role of issuers of government bonds and other fixed-income instruments in primary and secondary markets.

Abstract: Government debt issuance procedures and policies differ across OECD jurisdictions, in particular in terms of technical standards for selling techniques, primary dealer systems and other primary market arrangements. However, the increased integration of global financial markets (including the jump in the integration of European government debt markets since the introduction of the Euro) has been an important catalyst in the standardisation of the structure and types of instruments as well as the convergence of general procedures and policies for the issuance government debt. In many countries, the ongoing credit and economic crises have prompted a review of existing issuance procedures and policies. This article provide (a) a survey of the general characteristics of government debt issuance procedures and related primary dealer (PD) arrangements in the OECD area; and (b) an evaluation of the challenges and changes generated by the impact of the turmoil in global financial markets on issuance procedures and policies.

Abstract: The principal purpose of this article is to analyse the trade-off between the (un)certainty in contributions on the one hand and benefits on the other that is embedded in different pension arrangements. The article employs the funding ratio (ratio of assets to liabilities) and the replacement rate (ratio of benefits to salaries) as key criteria for evaluating the risk sharing characteristics of a private pension plan from the perspective of the plan member. The stochastic simulations performed show that hybrid plans (those in between traditional DB and individual DC) appear to be more efficient and sustainable forms of risk sharing than either of the other two. Of the three main hybrid plans analysed, conditional indexation plans appear to have the greatest potential as sustainable forms of risk sharing.

Abstract: The Ninth OECD/World Bank/IMF Annual Global Bond Market Forum held on 22-23 May 2007 in Paris, France, highlighted that there has been very sharp growth in the use of derivative instruments in both mature and emerging market countries. The use of derivative instruments is helping public debt managers in their portfolio management operations and in supporting market development. Several institutional and structural impediments, however, remain toward the more active use of derivative products. Most developed market debt managers use derivative instruments for debt management purposes, while this is the case for only a handful of emerging markets. Several emerging markets, though, are taking steps towards developing the legal environment necessary to support derivative markets, and are addressing the challenges posed by illiquidity of the underlying cash market, deficiencies in prudential regulation, and restrictions on market participation.

Abstract: Retail borrowing programmes are one component of government debt issuance in both OECD and non-OECD countries. These programmes take a variety of forms and often exist to satisfy a number of objectives. In some jurisdictions, they play a significant funding role. Even in countries where retail borrowing programmes play a small role, they are in many cases politically important because they satisfy primarily social objectives. In recent years, some OECD countries have begun to reconsider their retail borrowing programmes. Shrinking borrowing requirements in a number of countries have led to priority being put on maintaining liquid wholesale markets. Other countries continue to see benefits from their retail borrowing programmes and use them as a significant and stable source of funding. These governments are often innovative at finding ways to drive down administration costs, such as through the use of new electronic distribution channels and total dematerialisation of securities.

Abstract: The demand for long-dated bonds has increased, driven by stricter asset-liability matching regulations governing pension funds, new international accounting standards, as well as new risk-based regulations for insurance companies. In several countries, pension funds and insurance companies are important investors in long-dated bonds. Projections of rapidly ageing and longer-living populations in most OECD countries indicate that the demand for ultra-long paper is poised to grow further. Governments in several OECD countries have responded to that demand, by starting or re-introducing the issuance of very long (20 to 30 years) and ultra-long (30 years and longer) bonds, provided that the issuance of those bonds is consistent with the cost-risk objectives of the minimisation of borrowing cost subject to a preferred level of risk. Consequently, there has been an increase in the supply of (ultra-)long bonds as a percentage of total bonds outstanding in many markets. An important consideration for issuers is that pension funds and insurance companies are to an important degree buy-and-hold investors. This may lead to illiquid markets in long-dated paper when the ongoing supply of (ultra-)long government bonds remains below a certain critical level, resulting in higher government borrowing costs than paper issued in liquid markets. From a medium-term strategic issuers’ perspective, a liquid market in (ultra-)long bonds requires substantial and regular issues by government debt managers. Changes in regulatory standards and the adoption of new international reporting standards have increased the focus on liability-driven investing by pension funds. The study concludes that it is likely that there will be some re-allocation of the assets of many pension funds and insurance companies toward (ultra-)long bonds. However, views differ as to the pace and magnitude of such a re-allocation.résumé La gestion de la dette publique et l’évolution du marché des titres d’État à (ultra) long terme La demande d’obligations à échéances éloignées a augmenté, sous l’effet de plusieurs facteurs : durcissement de la réglementation relative à la congruence des actifs et des passifs applicables aux fonds de pension, nouvelles normes comptables internationales et nouvelles réglementations fondées sur les risques pour les sociétés d’assurance. Dans plusieurs pays, les fonds de pension et les sociétés d’assurance sont de gros investisseurs en obligations à échéances éloignées. Les projections faisant état d’un vieillissement rapide des populations et de l’allongement de l’espérance de vie dans la plupart des pays de l’OCDE indiquent que la demande de titres à ultra long terme ne peut que s’accroître encore. Les gouvernements de plusieurs pays de l’OCDE réagissent à cette demande en introduisant ou réintroduisant des émissions de titres à très long terme (20 à 30 ans) et à ultra long terme (30 ans et plus), dès lors que ces émissions sont cohérentes avec leurs objectifs ‘coût-risque’ de minimisation du coût d’emprunt pour un niveau de risque préféré. On a donc assisté sur de nombreux marchés à une augmentation de l’offre d’obligations à (ultra) long terme en pourcentage de l’encours total d’obligations. Considération importante pour les émetteurs, les fonds de pension et les sociétés d’assurance sont dans une large mesure des investisseurs qui suivent une politique de type « acheter pour conserver ». Cela peut conduire à des marchés illiquides des titres à échéances éloignées lorsque l’offre de titres d’État à (ultra) long terme reste inférieure à un certain seuil critique, ce qui accroît les coûts d’emprunt des pouvoirs publics par rapport aux titres émis sur des marchés liquides. Du point de vue des émetteurs ayant une stratégie à moyen terme, un marché liquide des obligations à (ultra) long terme suppose des émissions substantielles et régulières de la part des gestionnaires de la dette publique. L’évolution des normes réglementaires et l’adoption des nouvelles normes de communication financière ont accru la tendance des fonds de pension à orienter leurs investissements en fonction de leurs engagements. Selon les conclusions de l’étude, on assistera probablement à une certaine réallocation des actifs de nombreux fonds de pension et sociétés d’assurance au profit des obligations à (ultra) long terme. Néanmoins, les avis divergent quant au rythme et à l’ampleur de ce phénomène.

Abstract: Uncertainty about length of life, longevity risk, is a growing financial problem for pension funds and annuity providers. Unfortunately, there is a lack of financial instruments to hedge against this longevity risk, thereby complicating risk management by pension funds and hindering the expansion of the annuity market. Consequently, this paper examines the role of government in promoting a private market solution for longevity hedging financial products. Governments could in principle improve the market for annuities by issuing longevity-indexed bonds and by producing a longevity index. The paper argues that the first public policy role is hampered by the fact that governments are themselves already exposed to significant longevity risk. However, governments could take other steps such as producing a reliable longevity index.

Abstract: This article presents highlights from the forthcoming OECD cross-country study Public Debt Management and Bond Markets in Africa. Debt managers from an increasing number of emerging market jurisdictions face challenges similar to those of their counterparts from advanced markets due to competitive pressures from global finance and the related need to implement OECD leading practices in this policy area. The article shows that OECD standards in public debt management and related market operations are, therefore, of great importance for public debt management and bond market development in Africa. Several African debt managers have introduced the leading debt management practices of OECD countries, use them for designing new debt strategies (including for managing contingent liabilities), and have made impressive progress in developing their local government securities markets. Many countries in the region are taking advantage of debt reduction initiatives. Avoiding falling back into positions of unsustainable debt is identified as a key challenge for many African governments. OECD financial policy makers are increasingly interested in developments in emerging markets, including those on the African continent. Moreover, emerging markets (including the latest emerging market region, Africa) are an increasingly important asset class for investors from the OECD area. Thus, the policy conclusions and priorities identified here are of interest to not only African countries but also the OECD area and other emerging market countries. Local bond markets in several African countries have gained in strength in terms of liquidity and maturity structure, making them more attractive for important categories of OECD investors and less vulnerable to exchange rate shocks.