Micro-Perspective on Public Debt Management: Creating an Optimal Portfolio

Public debt management is a strategy formulation process minimizing public borrowing costs at a certain risk level at a given time. The aim of this study is to determine how to create optimal public debt portfolio in Turkey over the period of 2005:01-2017:12 when the country is in various conjunctural periods. The results of the analysis indicate that in order for the public debt portfolio to be managed optimally where the country risk premium is high, maturity should be shortened, the share of domestic fixed rate bonds should be increased while the share of floating rate bonds should be reduced. However, where the country risk premium is low, maturity should be extended, the shares of domestic fixed rate bonds and CPI indexed bonds should be increased, while the share of floating rate bonds should be reduced.