This paper develops a sovereign debt model with investment, in which the country's productivity shock has two components: a private shock (such as a change in domestic institutions) and a public shock (such as a publicly observed technological change). The government observes the private shock,...

Using a novel data set containing all bids by all bidders for Mexican government bonds from 2001 to 2017, we demonstrate that asymmetric information about default risk is a key determinant of primary market bond yields. Empirically, large bidders do not pay more for bonds than the average bidder...

Using bid-level data from discriminatory auctions for Mexican government bonds, we demonstrate that asymmetric information about default risk is a key friction in sovereign bond markets. We document that large bidders achieve higher bid acceptance rates than other bidders despite paying no more...