Pricing Sovereign Debt: Foreign versus Local Parameters
Elisabeth de Fontenay,
Irving Arturo de Lira Salvatierra and
European Financial Management, 2018, vol. 24, issue 2, 261-297
Sovereign bonds may be issued under either local or foreign parameters. This decision involves a tradeoff between the sovereign retaining discretion in managing the issue and relinquishing control to third parties. Examining three key bond parameters âˆ’ governing law, currency, and stock exchange listing âˆ’ we find that investors generally consider foreignâ€ parameter debt to be less risky than comparable localâ€ parameter debt issued by same sovereign. By matching the foreignâ€ and localâ€ parameter bonds of sovereigns that have issued both, we find that, with few exceptions, both investment grade and nonâ€ investment grade sovereigns are able to issue their foreignâ€ parameter bonds at relatively lower yields.
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