The Brady-Euro Yield Differential Debate: Why Arbitrage is Infeasible

Federico Kaune Moreno and Elaine Buckberg

No 1996/127, IMF Working Papers from International Monetary Fund

Abstract: Brady bonds offer substantially higher returns than Eurobonds. This paper examines the Brady and Eurobond markets for developing country debt and finds that the apparent arbitrage opportunity is not only smaller than it at first appears, but is infeasible given the illiquidity of the Eurobond market. The maturity adjusted return differential between Brady and Eurobonds is smaller than the commonly cited yield spreads. Moreover, the transactions costs of executing a Eurobond short contract render arbitrage a loss-making proposition. Given the many crossover investors who are active in both the Brady and Euro markets, why do Eurobond investors not trade them actively?

Keywords: WP; yield; Eurobond issue; Eurobond; quoted yield differential; Brady bond; differential debate; Eurobond yield series; yield premium; Bonds; International capital markets; Bond yields; Yield curve; Treasury bills and bonds (search for similar items in EconPapers)
Pages: 26
Date: 1996-11-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=2043 (application/pdf)

Related works:
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:imf:imfwpa:1996/127

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().