Interpreting Sovereign Spreads
13 Pages Posted: 19 Jun 2012
Date Written: March 2007
Sovereign spreads can be broken up into two components: the expected loss from default and the risk premium, with the latter reflecting how investors price the risk of unexpected losses. We show that the risk premium is often the larger part of the spread.
JEL Classification: G15, F34
Suggested Citation: Suggested Citation