Does fiscal austerity influence sovereign debt spreads in a state-dependent manner? To investigate this, we develop an endogenous sovereign default model that incorporates long-maturity debt, fiscal rules, and investment. We uncover novel insights in the Greek default. First, our model provides...

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...

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...

How do financial markets respond to concerns over debt sustainability and the level of public debt in emerging markets? We introduce a measure of debt sustainability – the difference between the debt stabilizing primary balance and the primary balance – in an otherwise standard spread...

In this article we examine the relations between risk, the choice of foreign or local contract terms (parameters) and maturity in the sovereign debt market. Our primary finding is that the maturities of bonds that carry a meaningful degree of risk (rating BBB+ and below, which we label Lower...

This paper revisits the discussion about the role that fundamentals play in asset prices using sovereign credit spread data. We augment the standard macroeconomic proxy set by text-based measures of country and global fundamentals from a database of Reuters news articles between 2007 and 2016....

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...

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 explores the drivers of secondary market yields of Sub-Saharan African (SSA) sovereign Eurobonds from 2008 to mid-2017. Our results indicate that, beyond global 'push' factors, country-specific 'pull' factors such as inflation and GDP growth matter too for SSA Eurobond performance. A...

Market liquidity is of value to both investors and issuers of securities, and is therefore a crucial factor in asset pricing. For the important asset class of Eurobonds, significant feedback from liquidity to pricing is established, and it is shown that bid-ask spreads (a proxy for market...