2023-07-18-国际清算银行-原罪还原_持续时间风险的作用_66页_1mb

Summary

BIS Working Paper 1109: Role of Duration Risk

Authors: Carol Bertaut, Valentina Bruno, Hyun Song Shin
Date: July 2023
JEL Classification: F65, G23, H63
Keywords: Portfolio Flows, Local Currency Bonds, Non-Bank Financial Intermediaries

Introduction & Background

Traditional financial globalization aims to overcome currency mismatch vulnerabilities caused by foreign currency borrowing. However, this study shows that solving one problem creates another: while emerging market (EM) governments increasingly issue bonds in their own currency ("overcoming Original Sin"), currency risk is now borne not just by borrowers but also by global investors. This redistribution of risk (referred to as "Original Sin Redux") highlights the role of duration and exchange rate risks in portfolio flows.

Key Findings

1. Duration and Currency Risk:

   • Duration risk increases with longer maturities, making bond prices more sensitive to interest rate changes.
   • Combinatio with currency risk creates a "wind chill" effect during periods of dollar appreciation.
   • Investors, particularly global portfolio managers, evaluate returns in dollar terms, which amplifies sensitivity to both maturity and currency risks.

2. Mutual Funds Sensitivity:

   • Mutual funds are the most sensitive to shifts in global financial conditions.
   • These funds show amplified behavior in the face of financial stress due to high redemption pressure and sell-offs.
   • Longer-maturity bonds increase sensitivity to duration risk regardless of currency denomination.

3. Investor Base Changes:

   • Over the past decade, EM local currency bond holdings by global investors generally declined despite efforts to overcome Original Sin.
   • Domestic investors often absorb sell-offs from foreign investors, partially shifting risk back to borrowers.
   • Pension funds and insurance companies, with more stable portfolios, act as stabilizing counterweights to mutual fund volatility.

4. Global Factor: Dollar Dominance:

   • The broad US dollar index serves as a barometer of global financial conditions and exhibits strong predictive power for portfolio flows.
   • Dollar appreciation forces investors to close dollar-denominated positions with losses plus currency loss, creating compounding negative effects.
   • This holds especially true during turbulent episodes, such as during COVID-19.

5. Policy Implications:

   • The amplification effects highlight the need for careful macroprudential policy to manage portfolio flows and systemic vulnerabilities.
   • Findings challenge conventional wisdom that focusing on currency mismatch in borrowers is sufficient; market vulnerabilities must also account for duration and portfolio composition effects.

Methodology & Data

• Data: US Treasury International Capital (TIC) data on cross-border portfolio flows, local currency bonds, and government bond spreads.
• Analysis: Includes annual regressions of portfolio flows on dollars indexes and panel VARs examining flow/exchange spread interactions at higher frequencies.

Conclusions

The paper demonstrates that EM capital markets must account for the complex interactions of duration and currency risk. While local currency debt issuance has helped mitigate immediate vulnerabilities, longer maturities and amplified flows due to market structure and investor structure may magnify vulnerabilities during periods of stress.