Foreign-law bonds: Can they reduce sovereign borrowing costs?

Marcos Chamon (), Julian Schumacher and Christoph Trebesch

Journal of International Economics, 2018, vol. 114, issue C, 164-179

Abstract: Governments often issue bonds in foreign jurisdictions, which can provide additional legal protection vis-à-vis domestic bonds. This paper studies the effect of this jurisdiction choice on bond prices. We test whether foreign-law bonds trade at a premium compared to domestic-law bonds. We use the euro area 2006–2013 as a unique testing ground, controlling for currency risk, liquidity risk, and term structure. Foreign-law bonds indeed carry significantly lower yields in distress periods, and this effect rises as the risk of a sovereign default increases. These results indicate that, in times of crisis, governments can borrow at lower rates under foreign law.

Keywords: Sovereign debt; Creditor rights; Seniority; Law and finance (search for similar items in EconPapers)
JEL-codes: F34 G12 K22 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (30)

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Journal Article: Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2018)
Working Paper: Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2018)
Working Paper: Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2018)
Working Paper: Foreign-law bonds: can they reduce sovereign borrowing costs? (2018)
Working Paper: Foreign-law bonds: Can they reduce sovereign borrowing costs? (2018)
Working Paper: Foreign Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:114:y:2018:i:c:p:164-179

DOI: 10.1016/j.jinteco.2018.06.004

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