Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets.

This paper provides empirical evidence relevant to the debate over the desirability of reforms to the way that financial markets and the international community deal with sovereign debt crises. We present new evidence showing that the use of collective action clauses (CACs) in sovereign emerging markets issuance has been wider than previously believed. In addition, we provide results on the way that financial markets have priced the use or non-use of CACs, both before and after the path-breaking issue by Mexico in February 2003. We interpret recent developments as indicating that US investors now accept that the use of well-designed CACs is not inconsistent with protection of creditor rights. Copyright 2003 by Blackwell Publishers Ltd.