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Foreign exchange reserves --- Government securities --- Foreign exchange rates --- China --- United States --- Foreign economic relations

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By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In particular, by 2008, foreign purchases of US Treasuries are estimated to have had cumulatively reduced long term real yields by around 80 basis points. The subsequent total impact of Fed purchases in 2008-2012 has been even larger: the quantitative easing (QE) has depressed real 10-year yields by around 140 basis points. Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium.

Government securities --- Interest rates --- Liquidity (Economics) --- Monetary policy --- Assets, Frozen --- Frozen assets --- Finance --- Banks and Banking --- Investments: General --- Investments: Bonds --- Foreign Exchange --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Investment & securities --- Banking --- Securities --- Bonds --- Treasury bills and bonds --- Real interest rates --- Central bank policy rate --- Financial institutions --- Financial services --- Yield curve --- Financial instruments --- United States

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Asset allocation decisions of international investors are at the core of capital flows. This paper explores the impact of these decisions on long-term government bond yields, using a quarterly investor base dataset for 22 advanced economies over 2004-2012. We find that a one percentage point increase in the share of government debt held by foreign investors can explain a 6-10 basis point reduction in long-term sovereign bond yields over the sample period. Accordingly, international flows to core advanced economy bond markets over 2008-12 are estimated to have reduced 10-year government bond yields by 40-65 basis points in Germany, 20-30 basis points in the U.K., and 35-60 basis points in the U.S. In contrast, foreign outflows are estimated to have raised 10-year government bond yields by 40-70 basis points in Italy and 110-180 basis points in Spain during the same period. Our results suggest that the divergence in long-term bond yields between core and periphery economies in the euro area may continue unless the “normalization” of macroeconomic determinants of bond yields is accompanied by a similar “normalization” of the foreign investor base.

Cointegration. --- Government securities --- Rate of return --- Econometrics --- Investment return --- Investment yield --- Return on equity --- Return on investment --- ROI (Rate of return) --- Capital investments --- Profit --- Ratio analysis --- Risk-return relationships --- Government agency securities --- Government bonds --- Public securities --- Treasuries (Securities) --- Treasury bonds --- Bonds --- Debts, Public --- Securities --- Econometric models. --- Banks and Banking --- Exports and Imports --- Investments: Bonds --- Public Finance --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Debt --- Debt Management --- Sovereign Debt --- International Lending and Debt Problems --- Investment & securities --- Finance --- Public finance & taxation --- International economics --- Bond yields --- Yield curve --- Sovereign bonds --- Public debt --- External debt --- Financial institutions --- Financial services --- Interest rates --- Debts, External --- United States

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This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals.

Quantitative easing (Monetary policy) --- Stocks --- Bonds --- Government securities --- Foreign exchange rates --- Monetary policy --- Government agency securities --- Government bonds --- Public securities --- Treasuries (Securities) --- Treasury bonds --- Debts, Public --- Securities --- Bond issues --- Debentures --- Negotiable instruments --- Common shares --- Common stocks --- Equities --- Equity capital --- Equity financing --- Shares of stock --- Stock issues --- Stock offerings --- Stock trading --- Trading, Stock --- Corporations --- Going public (Securities) --- Stock repurchasing --- Stockholders --- QE (Monetary policy) --- Queasing (Monetary policy) --- Banks and banking, Central --- Prices --- Exports and Imports --- Finance: General --- Foreign Exchange --- Investments: Bonds --- Open Economy Macroeconomics --- International Policy Coordination and Transmission --- General Financial Markets: General (includes Measurement and Data) --- International Investment --- Long-term Capital Movements --- Finance --- Currency --- Foreign exchange --- International economics --- Investment & securities --- Exchange rates --- Capital flows --- Bond yields --- Financial integration --- Stock markets --- Financial institutions --- Balance of payments --- Financial markets --- Capital movements --- International finance --- Stock exchanges --- China, People's Republic of

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We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.

Government securities. --- Default (Finance) --- Financial risk. --- Bank investments. --- Debts, Public. --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Bank portfolios --- Banks and banking --- Investments --- Business risk (Finance) --- Money risk (Finance) --- Risk --- Finance --- Finance, Public --- Repudiation --- Government agency securities --- Government bonds --- Public securities --- Treasuries (Securities) --- Treasury bonds --- Debts, Public --- Securities --- Banks and Banking --- Investments: Bonds --- Money and Monetary Policy --- Industries: Financial Services --- Financial Risk Management --- Finance: General --- International Lending and Debt Problems --- Financial Aspects of Economic Integration --- International Financial Markets --- Debt Management --- Sovereign Debt --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Crises --- Financial Institutions and Services: Government Policy and Regulation --- Investment & securities --- Banking --- Monetary economics --- Economic & financial crises & disasters --- Sovereign bonds --- Loans --- Bank credit --- Financial institutions --- Financial crises --- Stress testing --- Financial sector policy and analysis --- Credit --- Financial risk management --- Greece