Entre la peste et le choléra: le détenteur d'obligations peut préférer la répudiation au défaut

Kim Oosterlinck and Loredana Ureche-Rangau

No 04-021.RS, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Sovereign debts are often subject to payment suspension. Default, i.e. the financial incapacity to fulfil the debt service, and repudiation, i.e. the denial by a sovereign to recognize its legal obligations, are normally used to explain these payment suspensions. Intuitively, for bondholders, defaults should incur the smallest financial losses. In this case, bondholders may indeed hope for either a negotiated solution (leading only to a partial loss), or for a resumption of the debt service if the defaulting state manages to overcome its financial troubles. In the case of repudiations, these two elements are not relevant as repudiations usually go with a complete stop of the negotiation process. Furthermore, when a country repudiates its debt, its pay-back ability does not matter as the debtor government refuses to fulfil its financial obligations. This paper shows, by using two series of bonds (Romanian bonds in default during the 1930’ and Russian bonds repudiated in 1918), that there are some situations when the market prices of repudiated bonds may stay above those of defaulted bonds. This counter-intuitive observation is explained by market anticipation of possible events having a strong influence on the repudiated bond prices (bail out of the Russian debt by the French Government or by a country created following the decline of the Tsarist Empire).

Keywords: Dette souveraine; défaut; répudiation. (search for similar items in EconPapers)
JEL-codes: F34 G15 G33 N20 N24 (search for similar items in EconPapers)
Pages: 22 p.
Date: 2004-08
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published by: Centre Emile Bernheim, Bruxelles

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Related works:
Working Paper: Entre la peste et le choléra: Le détenteur d'obligations peut préférer la répudiation au défaut (2005)
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