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Debt-Maturity Management with Liquidity Costs

2019
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Release : 2019
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Book Synopsis Debt-Maturity Management with Liquidity Costs by : Saki Bigio

Download or read book Debt-Maturity Management with Liquidity Costs written by Saki Bigio. This book was released on 2019. Available in PDF, EPUB and Kindle. Book excerpt: We characterize the optimal debt-maturity management problem in the presence of liquidity costs. A government issues an arbitrary number of finite-maturity bonds and faces income and interest-rate risk, which can tempt it to default. Optimal issuances are spread out across maturities and are given by the ratio of a value gap over a liquidity coefficient that measures the price impact. The value gap is the proportional difference between the bond prices obtained by discounting with the international interest rates and with the domestic discount factor. This characterization allows us to quantify the contribution of different economic forces--impatience, yield-curve riding, expenditure smoothing, self-insurance, credit risk, and default incentives--in shaping the optimal debt maturity distribution. In an application, we estimate the liquidity coefficients using Spanish debt auction data and exploit the framework to evaluate Spanish debt management practices.

A Framework for Debt-Maturity Management

2019 Bonds
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Release : 2019
Genre : Bonds
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Book Synopsis A Framework for Debt-Maturity Management by : Saki Bigio

Download or read book A Framework for Debt-Maturity Management written by Saki Bigio. This book was released on 2019. Available in PDF, EPUB and Kindle. Book excerpt: We characterize the optimal debt-maturity management problem of a government in a small open economy. The government issues a continuum of finite-maturity bonds in the presence of liquidity frictions. We find that the solution can be decentralized: the optimal issuance of a bond of a given maturity is proportional to the difference between its market price and its domestic valuation, the latter defined as the price computed using the government’s discount factor. We show how the steady-state debt distribution decreases with maturity. These results hold when extending the model to incorporate aggregate risk or strategic default.

Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads

2012 Economics
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Release : 2012
Genre : Economics
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Book Synopsis Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads by : Hui Chen

Download or read book Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads written by Hui Chen. This book was released on 2012. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: We build a dynamic capital structure model to study the link between firms' systematic risk exposures and their time-varying debt maturity choices, as well as its implications for the term structure of credit spreads. Compared to short-term debt, long-term debt helps reduce rollover risks, but its illiquidity raises the costs of financing. With both default risk and liquidity costs changing over the business cycle, our calibrated model implies that debt maturity is pro-cyclical, firms with high systematic risk favor longer debt maturity, and that these firms will have more stable maturity structures over the cycle. Moreover, pro-cyclical maturity variation can significantly amplify the impact of aggregate shocks on the term structure of credit spreads, especially for firms with high beta, high leverage, or a lumpy maturity structure. We provide empirical evidence for the model predictions on both debt maturity and credit spreads

Linking Policy to Outcomes

2019
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Release : 2019
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Book Synopsis Linking Policy to Outcomes by : Mattia Landoni

Download or read book Linking Policy to Outcomes written by Mattia Landoni. This book was released on 2019. Available in PDF, EPUB and Kindle. Book excerpt: We characterize the long-run stable maturity distribution induced by a fixed issuance policy, defined as the maturity mix of new issues, thereby providing a method to link issuance policies with their long-run consequences. We derive closed-form expressions for a new class of forward-looking stable metrics, including per-period refinancing need, debt service cost, and average maturity -- an indicator of the supply of long-term bonds. We use these metrics to provide a normative analysis of the classical debt-management tradeoff between refinancing risk and debt service cost. Our results indicate that the US Treasury could move closer to the “efficient frontier” by tilting its issuance towards notes.

A Theoretical and Empirical Investigation of Debt Maturity Timing and Yield Curve Slope Analysis

1973 Debt
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Release : 1973
Genre : Debt
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Book Synopsis A Theoretical and Empirical Investigation of Debt Maturity Timing and Yield Curve Slope Analysis by : William Charles Handork

Download or read book A Theoretical and Empirical Investigation of Debt Maturity Timing and Yield Curve Slope Analysis written by William Charles Handork. This book was released on 1973. Available in PDF, EPUB and Kindle. Book excerpt:

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