« OECD Public Debt Markets TRENDS AND RECENT STRUCTURAL CHANGES OECD Public Debt Markets TRENDS AND RECENT STRUCTURAL CHANGES ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non- discriminatory basis in accordance with international obligations. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21stDecember1995), Hungary (7th May 1996), Poland (22ndNovember1996), Korea (12th December 1996) and the Slovak Republic (14th December2000). 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FOREWORD At its meeting in October 2000, the Committee on Financial Markets of the OECD requested the Working Party on Public Debt Management to undertake a study on recent trends and developments in OECD bond markets. The Working Party has been serving as a unique policy forum for government debt managers and experts from OECD Member countries since 1979. The Committee on Financial Markets noted that the Working Party is uniquely placed to provide detailed information on technical and policy issues in this area. In response to the request, a task force, consisting of Delegates to the Working Party and the OECD Secretariat, drafted a study, OECD Public Debt Markets: Trends and Structural Changes. The study provides an in-depth overview of the major trends and forces shaping the public debt markets in advanced economies, in particular, the key role played by debt management policies and techniques. The study contains also information on issues and policies in emerging market public debt markets, reflecting important insights gained from an extensive, ongoing policy dialogue of the Working Party with the debt managers from emerging markets. The study is formatted to include an overview of issues in the various regions, followed by chapters on specific countries containing detailed information and background analyses. Paul Malvey Hans Blommestein Chairman, OECD Working Party Secretary, OECD Working Party on Public Debt Management on Public Debt Management 3 TABLE OF CONTENTS PART I OVERVIEW Chapter 1 Introduction and Overview of OECD Bond Markets.............11 I. Background........................................................................................11 II. The Development of Liquid Public Debt Markets in the OECD Area..............................................................................12 III. Trends in North American Debt Markets...........................................15 IV. The emergence of a Pan-European Public Debt Market....................17 V. Trends and Recent Developments in the Asian-Pacific Public Debt Markets...........................................................................18 VI. Trends in Emerging Debt Markets......................................................20 VII. Policy Issues During Periods of Budgetary Surpluses and Declining Public Debt.................................................................21 VIII. The Growing Importance of Electronic Trading Systems..................23 IX. Trends in the Organisation of Debt Management Offices..................25 X. The Use of Derivatives.......................................................................26 PART II. NORTH AMERICAN MARKETS Chapter 2 Overview of North American Debt Markets............................35 Chapter 3 The Canadian Bond Market......................................................39 I. Introduction and Status of Current Market / Structure of Market.......39 II. The Role of Public Debt.....................................................................44 III. Analysis of Trends and Developments in the 1990s...........................45 IV. Views on Future Changes...................................................................51 Chapter 4 The United States Bond Market................................................53 I. Introduction and Status of Current Market / Structure of Market.......53 II. The Role of Public Debt.....................................................................60 III. Analysis of Trends and Developments in the 1990s...........................60 IV. Views of Future Changes in Market...................................................66 5 PART III EUROPEAN BOND MARKETS Chapter 5 Overview of Trends and Policies in European Bond Markets........................................................69 I. Introduction.........................................................................................69 II. The Size of European Public Debt Markets........................................70 III. Trends in Government Borrowing Requirements...............................71 IV. Convergence of Issuing Procedures....................................................71 V. Liquidity.............................................................................................72 VI. Investor Diversification......................................................................74 VII. Issuing Procedures..............................................................................75 VIII. Buy-back and Switching Operations..................................................77 IX. Electronic Trading..............................................................................79 X. Conclusions.........................................................................................80 Chapter 6 The Danish Bond Market...........................................................83 I. Introduction and Status of Current Market / Structure of Market.......83 II. The Role of Public Debt.....................................................................95 III. Analysis of Trends and Developments in the 1990s...........................97 IV. Views on Future Changes.................................................................100 Chapter 7 The German Bond Market......................................................103 I. Introduction and Status of Current Market / Structure of Market.....103 II. The Role of Public Debt...................................................................106 III. Analysis of Trends and Developments in the 1990s.........................109 IV. Views on Futures Changes...............................................................115 Chapter 8 The Swedish Bond Market.......................................................119 I. Introduction.......................................................................................119 II. Borrowing Requirement and Size of Debt........................................119 III. Functioning of the Government Debt Market...................................121 IV. Domestic Debt Market – Government and Non-government Debt Instruments..............................................................................123 V. Borrowing Strategy in a Budget Surplus Environment....................128 VI. Maintenance of Debt Management Infrastructure...........................132 VII. Views on Future Changes.................................................................133 Chapter 9 The UK Bond Market...............................................................135 I. Introduction and Status of Current Market / Structure of Market.....135 II. The Role of Public Debt...................................................................147 III. Analysis of Trends and Developments in the 1990s.........................149 6 PART IV ASIAN-PACIFIC MARKETS Chapter 10 Overview of Asian-Pacific Debt Markets...............................155 Chapter 11 The Australian Bond Market..................................................157 I. Introduction and Status of Current Market / Structure of Market.....157 II. The Role of Public Debt...................................................................162 III. Analysis of Trends and Developments in the 1990s.........................162 IV. Views on Future Changes in Market................................................163 Chapter 12 The Japanese Bond Market.....................................................167 I. Introduction and Status of Current Market / Structure of Market.....167 II. Role of Public Debt..........................................................................172 III. Analysis of Trends and Developments in the 1990s.........................173 IV. Views on Future Changes in Market................................................182 Chapter 13 The New Zealand Bond Market..............................................185 I. Introduction and Status of Current Market / Structure of Market.....185 II. The Role of Public Debt...................................................................189 III. Analysis of Trends and Developments in the 1990s.........................189 PART V EMERGING BOND MARKETS Chapter 14 Issues and Problems in Emerging Bond Markets..................197 I. Introduction.......................................................................................197 II. Overview of Problems and Issues in Emerging Fixed-Income Securities Markets............................................................................199 III. Contribution of Government Securities Markets and Public Debt Management to the Development of Corporate Securities Markets.......................................................203 IV. Obstacles in Developing Emerging Fixed-Income Securities Markets............................................................................206 V. Challenges in Emerging Debt Markets.............................................207 Chapter 15 The Polish Bond Market..........................................................213 I. Introduction and Status of Current Market / Structure of Market.....213 II. The Role of Public Debt...................................................................223 III. Analysis of Trends and Developments in the 1990s.........................225 IV. Views on Future Changes.................................................................227 7 Chapter 16 The Turkish Bond Market.......................................................231 I. Introduction and Status of Current Market / Structure of Market.....231 II. Analysis of Trends and Developments in the 1990s.........................242 Chapter 17 The Mexican Bond Market......................................................247 I. Introduction: Status and Structure of Markets.................................247 II. The Role of Public Debt...................................................................252 III. Analysis of Trends and Developments in the 1990’s.......................253 IV. Market Effects and Policy Issues in a Deficit Environment.............254 IV. Future Agenda for Improving the Bond Market...............................259 Chapter 18 The Korean Bond Market........................................................261 I. Introduction: Status and Structure of Markets..................................261 II. The Role of Public Debt...................................................................266 III. Trends and Developments in Bond Markets in 1990s......................270 IV. Market Effects and Policy Issues in a Deficit Environment.............273 V. Future Agenda for Improving the Bond Market...............................278 8 PART I OVERVIEW 9