Diogo Sampaio Lima

Sovereign green bonds usually promise ordinary sovereign cash flows together with use-of-proceeds commitments. This institutional fact makes the bond-level greenium a misleading sufficient statistic for the value of the commitment. If a credible green covenant improves fiscal capacity and lowers default risk, the benefit should be capitalized into all pari-passu claims on the issuer, not only into the labelled bond. I formalize this idea by decomposing the observed greenium into an issuer-wide commitment component, a bond-specific residual wedge, and pass-through to conventional debt and CDS. The empirical evidence is consistent with this decomposition: sovereign greeniums are close to zero in yields, modest in asset-swap and z-spread measures, issuer-risk event responses are small, and official allocation reports reveal substantial heterogeneity in credibility, adaptation content, and accounting additionality. I then develop a long-term sovereign default model with climate risk, adaptation capital, and green-obligation states. In the Brazil benchmark, green access lowers mean spreads, reduces annual default risk, and raises initial-state welfare by 1.29 percent relative to regular-only borrowing, even though the model-implied bond-level commitment gain is modest. Mandatory green issuance is welfare reducing. The results imply that sovereign green bonds are best understood as state-contingent commitment options rather than as universally cheaper debt.

The widespread use of unconventional monetary policies has fundamentally altered the environment for sovereign debt management. This paper investigates how sovereign governments should strategically manage their debt maturity structure when central banks are active participants in bond markets. Using Spanish data from 2009-2024, we provide empirical evidence that the Treasury systematically lengthens debt maturity in response to European Central Bank asset purchases. To rationalize this behavior, we develop a quantitative sovereign debt model with default risk where the government issues both short-term and long-term debt, and a central bank actively manages a bond portfolio. The key innovation is a portfolio balance channel where the term premium on long-term debt endogenously responds to the net supply of bonds held by private investors. The calibrated model successfully reproduces the empirical relationship: the long-term debt fraction rises as central bank holdings increase. Counterfactual analysis confirms that eliminating the variable term premium removes this systematic relationship entirely. Comparing a Strategic Treasury to a passive government constrained to fixed issuance mix reveals nuanced welfare trade-offs. The activist approach achieves consumption smoothing and benefits from strategic market timing, but exhibits higher default risk and lower sustainable debt levels.