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This paper proposes an approach to track US$1 trillion of emerging market government debt held by
foreign investors in local and hard currency, based on a similar approach that was used for advanced
economies (Arslanalp and Tsuda, 2012). The estimates are constructed on a quarterly basis from 2004
to mid-2013 and are available along with the paper in an online dataset. We estimate that about half a
trillion dollars of foreign flows went into emerging market government debt during 2010–12, mostly
coming from foreign asset managers. Foreign central bank holdings have risen as well, but remain
concentrated in a few countries: Brazil, China, Indonesia, Poland, Malaysia, Mexico, and South
Africa. We also find that foreign investor flows to emerging markets were less differentiated during
2010–12 against the background of near-zero interest rates in advanced economies. The paper extends
some of the indicators proposed in our earlier paper to show how the investor base data can be used to
assess countries’ sensitivity to external funding shocks and to track foreign investors’ exposures to
different markets within a global benchmark portfolio.

Debts, Public --- Fiscal policy --- Local finance --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Econometric models. --- Government policy --- Developing countries --- Politics and government. --- Banks and Banking --- Finance: General --- Public Finance --- Investments: General --- Exports and Imports --- Financial Crises --- Portfolio Choice --- Investment Decisions --- Debt Management --- Sovereign Debt --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- International Lending and Debt Problems --- Public finance & taxation --- Banking --- Finance --- Investment & securities --- International economics --- Foreign banks --- Securities markets --- Emerging and frontier financial markets --- Financial institutions --- Financial markets --- Government securities --- External debt --- Banks and banking, Foreign --- Banks and banking --- Capital market --- Financial services industry --- Debts, External --- South Africa

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Recent events have shown that sovereigns, just like banks, can be subject to runs, highlighting the importance of the investor base for their liabilities. This paper proposes a methodology for compiling internationally comparable estimates of investor holdings of sovereign debt. Based on this methodology, it introduces a dataset for 24 major advanced economies that can be used to track US$42 trillion of sovereign debt holdings on a quarterly basis over 2004-11. While recent outflows from euro periphery countries have received wide attention, most sovereign borrowers have continued to increase reliance on foreign investors. This may have helped reduce borrowing costs, but it can imply higher refinancing risks going forward. Meanwhile, advanced economy banks’ exposure to their own government debt has begun to increase across the board after the global financial crisis, strengthening sovereign-bank linkages. In light of these risks, the paper proposes a framework—sovereign funding shock scenarios (FSS)—to conduct forward-looking analysis to assess sovereigns’ vulnerability to sudden investor outflows, which can be used along with standard debt sustainability analyses (DSA).  It also introduces two risk indices—investor base risk index (IRI) and foreign investor position index (FIPI)—to assess sovereigns’ vulnerability to shifts in investor behavior.

Political Science --- Law, Politics & Government --- Public Finance --- Debts, Public --- Finance, Public --- Cameralistics --- Public finance --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Currency question --- Debt --- Bonds --- Deficit financing --- E-books --- Public finances --- Banks and Banking --- Investments: General --- Financial Crises --- Portfolio Choice --- Investment Decisions --- Debt Management --- Sovereign Debt --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Public finance & taxation --- Banking --- Investment & securities --- Foreign banks --- Government debt management --- Government securities --- Financial institutions --- Public financial management (PFM) --- Securities --- Banks and banking, Foreign --- Banks and banking --- Financial instruments --- United States