Fall 2026 Seminar Series: Money and Finance Idea Lab, Columbia Center for Political Economy
Registration link: https://forms.gle/KkKM9aPfcn1V85peA
Sovereign Debt Markets and Hedge Funds: Financial Entanglements as Sources of Uncertainty
This session opens our fall series on the political economy of liquidity by considering how the entanglements of financial actors shape and produce uncertainty within sovereign debt markets. Underpinning nearly all other forms of credit, from mortgages to corporate debt to the financing of AI, the stability of sovereign debt markets is foundational to the wider financial system, as is demonstrated by the current moment of newly volatile yields and growing fiscal concerns. Hedge funds, specifically, have become major holders of U.S. Treasury debt, often using the asset as one leg of leveraged trades, deepening the market's reliance on borrowed money. That involvement has helped absorb government borrowing but it has also tied the market's stability to highly leveraged players, as the episode in the spring of 2020 made clear. The session explores what this entanglement of funding, monetary policy, and collateral means for the stability of sovereign debt markets, and for how uncertainty is managed and generated at the center of the financial system.
Speakers:
Loriana Pelizzon, Professor of Law and Finance at Goethe University Frankfurt and Deputy Scientific Director at SAFE
Elham Saeidinezhad, Doctoral Lecturer in Finance at the Colin Powell School of Business at City College of New York
We continue our webinar series on the political economy of liquidity this Fall with a deeper dive into questions of liquidity and uncertainty. A core thesis that has emerged from previous webinars–and developed in a recent paper–is that liquidity is endogenously generated by three functions in credit markets: sovereign debt management and public and private liquidity provisioning (or money creation). Uncertainty too, we now propose, is often the product of actions taken by those who participate in the creation and maintenance of liquidity. Consider, for example, recent interventions and statements of the guardians of sovereign debt management and public liquidity provisioning in the US: the Secretary of the Treasury and the Chairman of the Board of Fed Governance, respectively.
Yet this year we explore how the issue runs even deeper and touches upon the various strategies that core actors in financial markets pursue. For one, they often do so with interests in mind that are in tension with those of the other key players. At the same time, however, the instruments used to pursue these strategies are often deeply entangled with one another: Sovereign debt not only funds governments but also operates as a messenger of monetary policy.
In our sessions, we will explore why and how it is difficult, if not impossible, to foresee how these interactions will pan out when any of the core actors can change course for reasons that might be idiosyncratic to its function. In short, we will consider the ways in which uncertainty might result from endogenous processes. Of course, external factors also play a role, including political and technological change, such as the AI boom, where the demand for funding has generated even more uncertainty. Together, these sessions will examine how uncertainty emerges from the interaction of financial actors, instruments, and external forces within an increasingly complex system of liquidity creation.
To explore these matters, we plan to hold three webinars.
