This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs,...

Expectations of risky bond payments are unobservable and recovery rates for sovereigns are hard to estimate because they have no contractual claims to defined assets and samples of defaults are limited. A geometric version of credit spread is used to derive expected payments, dependent on...

This study investigates the term-structure of sovereign emerging market yield spreads by decomposing it into the default risk component and the residual risk premium for Eurobonds of Mexico, Colombia and Brazil. We find that the risk premium tends to increase with maturity and account for the...

This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market...

Leading into a debt crisis, interest rate spreads on sovereign debt rise before the economy experiences a decline in productivity, suggesting that news about future economic developments may play an important role in these episodes. In a VAR estimation, a news shock has a larger contemporaneous...

ow do credit default swaps (CDS) affect sovereign debt markets? The answer depends crucially on trading frictions, risk-sharing, arbitrage violations, and spillovers from secondary to primary markets. We propose a sovereign default model where investors trade bonds and CDS over the counter via...

We quantify the probability that a sovereign defaults on repayment obligations in foreign currency. Adopting the structural approach as first introduced by Merton, we consider the sovereigns ability-to-pay, characterised by the sum of discounted future payment surpluses, as the underlying...

This note provides the first empirical assessment of the dynamic interrelation between government bond spreads and their associated credit default swaps (CDS). We use data for the Southern European countries (Greece, Italy, Portugal and Spain) that found themselves with a problematic public...

This paper presents a theory of sovereign borrowing and lending when there is no court to enforce repayment obligations. Specifically, I extend the costly state verification approach in financial contracting to include an ex-post repayment decision in which the borrower repays creditors to avoid...