We present a model of sovereign debt in which, contrary to conventional wisdom, government defaults are costly because they destroy the balance sheets of domestic banks. In our model, better financial institutions allow banks to be more leveraged, thereby making them more vulnerable to sovereign...

On March 28, 2011, the U.K. Government took a bold step. It adopted legislation that made permanent, a temporary Debt Relief Act that limits vulture funds from being able to make massive profits from the 40 most impoverished countries debt in British courts, following a major campaign...

The euro-area sovereign debt crisis is receding. Europe is on a recovery path, growth is broad-based and unemployment is falling. One after the other, countries hit hardest by the crisis are exiting their adjustment programmes. However, debt remains high in most countries and future debt crises...

Why do almost all sovereign nations list their international bonds on stock exchanges? We examine several hypotheses for what drives sovereigns to list and where. In particular, we test the often invoked “bonding hypothesis,” which posits that exchanges perform a certification and monitoring...

Using proprietary data on banks' monthly securities holdings, we show that during the European sovereign debt crisis, domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of domestic sovereign bonds during months when the...

Sovereign debt restructurings are perceived as inflicting large losses to bondholders.However, many bonds feature high coupons and often exhibit strong post-crisis recoveries. To account for these aspects, we analyze the long-term returns of sovereign bonds during 32 crises since 1998, taking...

We develop models for portfolio diversification in the sovereign credit default swap (CDS) markets and show that, despite literature findings that sovereign CDS spreads are affected by global factors, there is sufficient idiosyncratic risk to be diversified away. However, we identify regime...

As of this writing in June 2016, the markets are predicting Venezuela to be on the brink of default. On June 1, 2016, the 6 month CDS contract traded at about 7000bps which translates into a likelihood of default of over 90%. Our interest in the Venezuelan crisis is that its outstanding...

By adopting a dynamic ARDL transformation, we investigate the cointegrating relationship of the government bond debt yields, driven by the common money market factors in Economic Monetary Union. The findings indicate that the introduction of the common currency has not a uniform effect on the...

What determines the recovery of sovereign bond holders in the face of a credit event? This paper studies empirical determinants for sovereign recovery risk. Guided by theoretically backed hypotheses we use a sample of 102 past restructurings and empirically test the relation between haircut...