Abstract

By concentrating government bond issues in a relatively limited number of popular, standard maturities, governments can assist the development of liquidity in those securities and thereby lower their debt-issuance costs. Markets, in turn, can also use such liquid issues as convenient benchmarks for the pricing of a range of other financial instruments. In addition, spreading the relatively few benchmark issues across a fairly wide range of maturities—building a “benchmark yield curve”—can facilitate more accurate market pricing of financial instruments across a similar maturity range and more generally facilitate better risk management in financial markets. Most industrial countries and some emerging economies have succeeded or made significant progress in developing a benchmark government bond yield curve that spans short-term bills to long-term bonds. Many other countries are in the early stages of developing a yield curve, and often do not have much freedom to issue securities in the full range of maturities needed for a complete yield curve. These countries may seek to develop a more limited number of benchmark securities in those maturities for which there is a market.