Sovereign debt portfolios: risks and liability management operations

Abstract

This paper addresses issues relating to (1) sovereign debt portfolio risks stemming from high sovereign debt levels and unbalanced debt portfolio structures, and (2) liability management operations intended to meet specified debt management objectives, including mitigation of these risks. Further, it outlines some common operations used by public debt managers such as debt swaps and debt buybacks, and explains the rationale and benefits from their undertakings.

Keywords:

• sovereign debt portfolios
• liability management
• public debt management

JEL classifications:

• F3
• H0
• G11
• G2

Notes

1. International Monetary Fund and The World Bank, 2001, Guidelines for Public Debt Management (Washington, DC).

2. It should be noted that an integrated asset/liability management approach is not considered in this note.

3. The Basel Committee on Banking Supervision allows for a regulatory capital charge for operational risk in banks.

4. In technical terms, delta is the first-order partial derivative of the option premium with respect to the underlying asset price; gamma is the second-order derivative of the option premium with respect to the asset price; theta is a sensitivity measure of a call option to the time of expiration; vega is the first-order partial derivative of the option premium with respect to volatility and rho is the first-order partial derivative of the option premium with respect to the risk-free interest rate.

5. International Monetary Fund and The World Bank, 2001, Guidelines for Public Debt Management (Washington, DC).