This paper surveys the literature on sovereign debt from the perspective of understanding how sovereign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand,...

I analyze how lack of commitment affects the maturity structure of sovereign debt. Governments balance benefits of default induced redistribution and costs due to income losses in the wake of a default. Their choice of short- versus long-term debt affects default and rollover decisions by...

I analyze how lack of commitment affects the maturity structure of sovereign debt. Governments balance benefits of default induced redistribution and costs due to income losses in the wake of a default. Their choice of short- versus long- term debt affects default and rollover decisions by...

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...

Sovereign state-contingent bonds, in particular growth-indexed bonds (GIBs), have rarely been issued in practice despite their theoretical benefits. This paper provides support for this apparent sovereign noncontingency puzzle by deriving the impact of GIBs on the upper tail of the distribution...

Commercial databases now make available to paying clients information about the legal terms in sovereign loan contracts. This information is important to academic researchers, to policy institutions such as the International Monetary Fund, and to investors and other market actors. For a random...

The average cost of borrowing on international financial markets varies widely from nation to nation even after controlling for the varying levels of indebtedness of their governments. This suggests that markets assign country specific default risk assessments. In this paper we focus on one...

Sovereigns in distress often engage in debt restructuring, typically negotiating with multiple classes of bondholders at once. We investigate whether sovereign bondholders benefit from committing not to restructure their debt. To do so, we use a court ruling that made one class of bonds easier...

We analyze how concerns for model misspecification on the part of international lenders affect the desirability of issuing state-contingent debt instruments in a standard sovereign default model à la Eaton and Gersovitz (1981). We show that for the commonly used threshold state-contingent bond...

The purpose of this article is to explain changes in sovereign yields using conventional “rating agency style” measures in comparison to contingent claims valuation-based measures. I will show that – in contrast to most conventional sovereign credit quality measures – contingent claims...