The Influence of Fiscal Hedging and Refinancing Risk Management on Public Debt Maturity in the Euro Area

Details

Supervisors

Rigas Oikonomou

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [60] en sciences économiques, orientation générale

Abstract

Given the increasing trend of the average maturity of outstanding public debt in the EU, we examine the potential influences of fiscal hedging and refinancing risk on the maturity structure of sovereign debt in ten Euro Area countries. We begin with an introduction to principles of risk management and hedging in the context of public debt, explaining how those can be linked to debt maturity. We then present and analyze the evolution of the maturity structure in the ten studied countries with the help of a SVAR model to determine the potential hedging effects of sovereign debt portfolios between 2002 and 2020. We also present a summary of the communication of various European debt management agencies, in which refinancing risk considerations occupy a central role. We conclude that while refinancing risk likely influences the observed trend of increasing debt maturity, no fiscal hedging effect of debt can be demonstrated with our statistical framework and it is therefore unlikely that it plays a role in the decisions surrounding the maturity of debt issuance. We nevertheless suggest avenues for alternative statistical approaches.