QWAFAFEW Denver - May 23rd Meeting
Predicting the Supply of Long-Term Bonds
Global sovereign debt now exceeds $60 trillion. These securities are the cornerstone of financial markets. Their maturity distribution affects yield curves and economic growth, in the view of many. After the financial crisis, the Fed pulled long maturities from the market to bring down long-term interest rates and boost the economy. Maturity structure also drives a sovereigns refinancing risk.
Surprisingly, little attention has been paid to the decisions on new issuance that determine the ultimate debt maturity structure. We take an initial step to bridge this gap with a simple framework to link bond issuance practices with the long-run maturity distribution. We apply this framework to study optimization questions, such as how a sovereign might efficiently balance its interest cost and refinancing risk.
Along the way, we gain insights into how corporate treasurers manage their debt and how the Fed might manage its balance sheet going forward. We suggest a method for identifying news about the future supply of long-term bonds.
Win is the president of Win Analytics LLC, a firm that consults with market participants on debt structures and fixed income securities. He has presented his research on bond markets at the Chicago Fed, the Brookings Institution, and in the Financial Times. He was previously CFO of a $7B education finance firm, investment banker, and advisor to governmental clients such as the Colorado Department of Transportation. He holds an MSc in Mathematical Finance from Oxford University and a math degree from Yale University.
Mattia teaches corporate finance at the Cox School of Business, Southern Methodist University as an Assistant Professor. His publications include Tax distortions and bond issue pricing in the Journal of Financial Economics. He was previously a researcher for the International Monetary Fund and the Max Planck Institute for Demographic Research. He holds a PhD in Economics from Columbia University, a Master in Public Policy degree from Duke University, and an undergraduate degree from Università Bocconi in Milan.
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