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

Marcos Chamon (), Julian Schumacher and Christoph Trebesch

No 2109, Kiel Working Papers from Kiel Institute for the World Economy

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
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/180914/1/1027950655.pdf (application/pdf)

Related works:
Journal Article: Foreign-law bonds: Can they reduce sovereign borrowing costs? (2018)
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? (2015)
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:zbw:ifwkwp:2109

Access Statistics for this paper

More papers in Kiel Working Papers from Kiel Institute for the World Economy Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().