Adapting sovereign debt issuance in a higher-yield world

With high issuance volumes and elevated yields occurring simultaneously, the recent period stands out as exceptional compared to the last two decades (Figure 1, Panel A). Historically, large issuance volumes were typically associated with low yields, and vice versa. This is not the case today.

Higher budget deficits and refinancing requirements have not only sharply increased issuance volumes of governments, but also put upward pressure on yields, thereby amplifying the effects of monetary policy tightening and a lower structural demand for long-end bonds. Consequently, yields have reached levels not seen since the global financial crisis, and issuance relative to GDP is at its highest outside the immediate pandemic years of 2020 and 2021.

A significant share of the recent increase in yields can be explained by the so-called term premium: the compensation investors demand for holding long-term bonds instead of investing in a sequence of short-term instruments. At the end of 2025, the average estimated 10-year term premium for large OECD issuers stood above 0.8%, its highest level in more than a decade (Figure 1, Panel B). This reflects, among other factors, greater uncertainty about inflation and interest rates, as well as limited demand for long-duration bonds and, in some cases, a deterioration of credit risk perception.

In this environment, debt managers need to reassess the balance between cost and risk. A central objective of public debt management is to minimise borrowing costs while limiting risks, particularly refinancing risk. A higher share of longer-term bonds reduces the risk of having to refinance at increased rates in the near future.

However, when term premia rise, this risk reduction becomes more expensive. In such conditions, it can be optimal to shift issuance towards shorter maturities to reduce borrowing costs, even if this increases medium-term refinancing needs.

As a result, many issuers have rebalanced their portfolios towards shorter maturities. The average term-to-maturity (ATM) of sovereign issuance in the OECD area decreased over the last few years, being around one year lower in 2025 compared to 2021 (Figure 2, Panel A).¹ This shift is even more visible when comparing the relative share of long-term versus short-term bond issuance (Figure 2, Panel B). The ratio of bonds issued with maturities of at least 30 years to 1-5-year bonds has fallen to the lowest level since at least the global financial crisis.

This rebalancing likely reflects both cost considerations and market absorption capacity, as investor demand for long maturities has weakened relative to that for shorter maturities. Higher issuance of shorter maturities may also have alleviated further upward pressure on long-term yields to some degree, as issuing larger volumes at the long end could have further increased term premia.

When term premia increase, governments face a larger penalty for locking in long-term funding. Debt managers therefore have an incentive to reduce borrowing costs by issuing a higher share of short-dated securities, even if this means accepting somewhat higher refinancing risks in the future. Empirical evidence suggests that this shortening of issuance maturities is not accidental but reflects a systematic adaptation to changing conditions.

Panel regression results for 36 OECD countries over 2010-2025 show that higher short-term interest rates and steeper yield curves are associated with shorter issuance maturities. On average, a one percentage point increase in the steepness of the yield curve between 10-year and 2-year government bonds is associated with a decrease in ATM of issuance of about 0.9 years (Table 1).²

Financing needs and the business cycle also play an important role. The empirical results suggest that larger issuance volumes and economic downturns are both linked to lower issuance maturities, likely reflecting the stronger capacity of the market to absorb short-term instruments. Treasury bills, in particular, are frequently used as flexible instruments to scale up issuance, especially during economic downturns.

In fact, the negative effect of the yield curve slope on ATM is potentially even more pronounced than the estimates reported here suggest, owing to a so-called endogeneity bias. An increase in the issuance of long-term bonds is likely to steepen the yield curve through higher supply, and vice versa. This feedback effect works in the opposite direction and therefore attenuates the estimated causal effect of the yield curve slope on ATM.

Drivers of average time to maturity (ATM) of issuance across OECD countries

Many OECD sovereign issuers currently benefit from previously lengthened debt profiles, which provide a degree of resilience and lower near-term refinancing needs. In this context, the recent shift towards shorter maturities can be seen as a pragmatic response to a higher-for-longer interest rate environment, helping to contain borrowing costs at a time when debt levels and financing needs remain elevated. However, to some degree, this strategy increases refinancing risks and exposure to market volatility.

That said, there is no one-size-fits-all approach for public debt management. The optimal balance between cost and risk depends on country-specific factors, including debt levels and structure, market absorption capacity, investor base, secondary market liquidity across the curve, and macroeconomic conditions. As elevated yields and borrowing needs persist, managing this trade-off will remain a central challenge for sovereign debt managers.

^{1. A decline of one year may appear modest. However, after more than a decade of consistently lengthening debt maturities, it represents a meaningful shift in borrowing strategy.}

^{2. The results are comparable to the findings of Beetsma et al. (2021), who analyse the determinants of ATM for six European countries. In fact, the negative effect of the yield curve slope on ATM is potentially even more pronounced than the estimates reported here suggest, owing to a so-called endogeneity bias. An increase in the issuance of long-term bonds is likely to steepen the yield curve through higher supply, and vice versa. This feedback effect works in the opposite direction and therefore attenuates the estimated causal effect of the yield curve slope on ATM.}

^{3. Note for Table 1: The table reports panel regression results with country fixed effects using annual data over the period 2010–2025. After excluding countries that are not regular issuers and cleaning the data for episodes with exceptionally high yields and/or hyperinflation, the sample covers 36 countries and 528 country-year observations. The dependent variable, ATM, refers to the average time to maturity of issuance in domestic-currency fixed-rate Treasury bills and bonds, excluding instruments that mature in the calendar year of issuance. ATM and the linear time trend are measured in years. All other regressors are expressed as percentage points. The 2-year yield and the 10y-2y term spread are annual averages of month-end data. Issuance-to-GDP measures total issuance relative to GDP, excluding intra-year financing. For Lithuania and Hungary, 3-year yields are used instead of 2-year yields, and for Costa Rica estimated zero yields are used instead of bond yields because of data availability reasons.  Driscoll–Kraay standard errors are reported in parentheses. Statistical significance levels are denoted as follows: * p<0.1, ** p<0.05, *** p<0.01. Overall R² measures the goodness of fit of the full model, while the within R² measures it after removing country fixed effects (and time fixed effects in specification 2).}
Sources: Banco Central de Costa Rica; LSEG; and OECD calculations