Autonomous agencies and relational contracts in government bond issues

Sadeh, Tal; Porath, Yehuda

doi:10.1111/rego.12257

Cited by 10 publications

(16 citation statements)

References 96 publications

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“…The sensitivity of governments to bond market developments therefore varies with the level of accumulated debt, the maturity structure of the debt, the composition of the investor base, and (for commodity exporters) commodity market prices (Campello, ; Kaplan, ; Kaplan & Thomsson, ). All government debt management offices, however, devote significant attention to considering the most appropriate means by which to access capital (Melecky, ; Sadeh & Porath, ; Wolswijk & De Haan, ).…”

Section: National Governments and Financial Marketsmentioning

confidence: 99%

Moving markets? Government bond investors and microeconomic policy changes

Mosley

Paniagua

Wibbels

2020

Economics & Politics

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Do sovereign bond markets react systematically to microeconomic policy reforms? Some observers suggest that investors are very attentive to supply-side policies such as those related to labor markets, corporate taxation, and product standards. They argue that, along with macroeconomic outcomes and broad financial market conditions, such reforms affect sovereign bond premiums, for developed as well as emerging economies. In contrast, we predict few systematic effects of supply-side policy reforms on sovereign bond market outcomes. Our theory draws on a standard three-equation model of the economy, widely accepted among economic and finance professionals. That model makes few clear predictions regarding the anticipated effects of microeconomic policy changes; as a result, we expect that such reforms will not generate systematic market reactions. Our analyses, based on daily data from 37 countries from 2004 to 2012, indeed reveal little evidence of a systematic bond market reaction to the 47 most significant reforms to corporate taxation and labor market regulation.These results call into question the notion that "bond market vigilantes" play a central role in compelling governments to enact specific microeconomic policy changes. K E Y W O R D S corporate tax policy, credit default swaps, event study, finance, labor policy, sovereign debt < International political economy 198 | MOSLEY Et aL. | 199MOSLEY Et aL. do not rely on daily trading data or offer a theoretical logic to explain why this should be the case. Indeed, Mosley (2003) assumed that investors hold clear preferences over government policies-macroeconomic as well as microeconomic-but that investors sometimes ignore a subset of those policies, as part of their attempts to economize on the collection and evaluation of information. Here, by contrast, we provide an account in which investors may be attentive to microeconomic policies as well, but in which they do not agree about how these policies matter for macroeconomic outcomes. We empirically test the central implication of this account, and the standard economic model underlying it: That microeconomic policy changes, even substantively large ones, have little systematic effect on investors' aggregate evaluations of default risk even when measured with daily price data.

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Section: National Governments and Financial Marketsmentioning

confidence: 99%

Moving markets? Government bond investors and microeconomic policy changes

Mosley

Paniagua

Wibbels

2020

Economics & Politics

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“…But the political economy of the degree to which DMOs can technocratically manage debt accumulation and borrowing strategies in developing countries is not well‐understood. Some argue de jure DMO independence is likely to have an effect (Sadeh & Porath, 2019) while others are skeptical of fiscal‐related agencies generally (Wren‐Lewis, 2013). Helpfully, these views are rooted in different political economy theories of the relationship between political interests, state institutions, and policy outcomes that provide competing expectations.…”

Section: The Political Economy Of Interests Institutions and Policy Outcomesmentioning

confidence: 99%

“…But previous studies ask different questions and leave this unaddressed. Autonomy's effect on maturities (Sadeh & Porath, 2019) and credit ratings (Sadeh & Rubinson, 2018) do not consider whether DMO autonomy affects the specific creditors developing countries use each year. Second, studies do not trace how annual DMO operations are part of annual fiscal policy making processes. Given the inevitable politics of fiscal policy processes, tracing DMOs' role in this process can shed light on the political constraints that even the most professional developing country DMO would face.…”

Section: The Political Economy Of Interests Institutions and Policy Outcomesmentioning

confidence: 99%

“…While one recent study shows DMO independence can affect maturities in developed democracies (Sadeh & Porath, 2019), public debt management cannot be easily compared across developed and developing contexts. Developing countries have different relationships with markets (Brooks, Cunha, & Mosley, 2015; Copelovitch, Gandrud, & Hallerberg, 2018), have access to official development finance alongside markets (Bunte, 2019; Wheeler, 2004), and have different structural constraints including limited domestic market depth, monetary policy influence, and possibly technical or professional limitations (Williams, 2013, p. 667).…”

Section: Introductionmentioning

confidence: 99%

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Interests over institutions: Political‐economic constraints on public debt management in developing countries

Cormier

2020

Governance

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Some use the model of independent central banks to posit that independent Debt Management Offices (DMOs) can enhance public debt sustainability. This study argues this is unlikely in developing countries. Developing country DMOs have limited space to apolitically manage (a) debt levels and (b) borrowing strategies. A comparison of South Africa and Botswana, using in‐depth interviews and primary sources, traces public debt processes to argue DMOs are unlikely to significantly affect the link between political interests and these two key public debt outcomes over time. This argument has three implications. First, it gives rise to questions about the role of institutions in the governance of public debt. Second, it adds to recent literature on developing country external borrowing preferences by highlighting ideological effects. Third, it reinforces the idea that political economy theories of the relationship between interests, institutions, and policy outcomes should vary by policy area and national income level.

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“…They went to great lengths, and paid money to preserve options for refinancing —hence the effort to keep multiple investor groups fed and watered at all times—but would not do the same for restructuring . Debt managers also invested heavily in their relationships with primary dealers, firms contractually obligated to buy and sell their bonds and maintain market liquidity (Sadeh and Porath 2017). Their investment in bond terms to manage remote contingencies was limited by comparison.…”

Section: Interviewsmentioning

confidence: 99%

If Boilerplate Could Talk: The Work of Standard Terms in Sovereign Bond Contracts

Gelpern¹,

Gulati²,

Zettelmeyer³

2019

Law Soc. Inq.

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Standard contract terms are “sticky”: they rarely change, even if change appears to be in the parties’ interest. Multiple theories to explain stickiness do not reach consensus on its causes. We investigate the role of stickiness in sovereign bond contracts, where it would be especially costly and therefore puzzling. In our interviews with more than a 100 officials responsible for the bond contracts of twenty-eight countries, they linked reluctance to change non-financial contract terms and the imperative of following a “market standard” for such terms. When a term could be described as standard for the government’s debt stock or borrower cohort, its content often came across as secondary. Sovereign debt managers seemed willing to forgo some of the benefits of contract terms for dealing with contingencies and revealing private information to avoid negative signals and maintain the liquidity of primary and secondary debt markets. Interviews with investors suggested a similar focus on standard form and a limited engagement with contract substance.

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Autonomous agencies and relational contracts in government bond issues

Cited by 10 publications

References 96 publications

Moving markets? Government bond investors and microeconomic policy changes

Moving markets? Government bond investors and microeconomic policy changes

Interests over institutions: Political‐economic constraints on public debt management in developing countries

If Boilerplate Could Talk: The Work of Standard Terms in Sovereign Bond Contracts

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