Multiple Potential Payers and Sovereign Bond Prices

Kim Oosterlinck and Loredana Ureche-Rangau

No 75, Working Papers from Bank of Greece

Abstract: Sovereign bonds are usually priced under the assumption that only the sovereign issuer may be responsible of their repayment. In some cases however, bondholders may legitimately expect to be repaid by more than one agent. For example, when a country breaks-up, successor states may agree to recognize their responsibility for part of the debt. Other extreme events, such as repudiations, may lead (and have led) bondholders to consider several bailout candidates at the same point in time. This paper first discusses the theoretical financial implications stemming from an infrequent and challenging situation, namely the existence of multiple potential payers. Then, through a historical precedent, the 1918 Russian repudiation, the paper confirms that the existence of multiple potential payers has a diversification effect which lowers the volatility of the bond price and increases its value. These results are strengthened by a comparison with a closely related standard case of default.

Keywords: Sovereign bonds; Repudiation; Default; Portfolio diversification; Multiple payers; Russia; Romania; Financial history. (search for similar items in EconPapers)
JEL-codes: F34 G15 G33 N20 N24 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2008-06
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.bankofgreece.gr/BogEkdoseis/Paper200875.pdf Full Text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Journal Article: Multiple Potential Payers and Sovereign Bond Prices (2008)
Working Paper: Multiple potential payers and sovereign bond prices (2008)
Working Paper: Multiple Potential Payers and Sovereign Bond Prices (2008)
Working Paper: Multiple potential payers and sovereign bond prices (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:75

Access Statistics for this paper

More papers in Working Papers from Bank of Greece Contact information at EDIRC.
Bibliographic data for series maintained by Anastasios Rizos ().