Pricing Sovereign Debt: Foreign Versus Local Parameters

37 Pages Posted: 7 Mar 2018

See all articles by Michael Bradley

Michael Bradley

Duke University - Fuqua School of Business

Elisabeth de Fontenay

Duke University School of Law

Irving De Lira Salvatierra

Duke University

G. Mitu Gulati

Duke University School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

Sovereign bonds may be issued under either local or foreign parameters. This decision involves a tradeoff between the sovereign retaining discretion in managing the issue and relinquishing control to third parties. Examining three key bond parameters − governing law, currency, and stock exchange listing − we find that investors generally consider foreign‐parameter debt to be less risky than comparable local‐parameter debt issued by same sovereign. By matching the foreign‐ and local‐parameter bonds of sovereigns that have issued both, we find that, with few exceptions, both investment grade and non‐investment grade sovereigns are able to issue their foreign‐parameter bonds at relatively lower yields.

Keywords: contracts, asset pricing, bonds, sovereign debt, currency risk, governing law

Suggested Citation

Bradley, Michael and de Fontenay, Elisabeth and De Lira Salvatierra, Irving and Gulati, Gaurang Mitu, Pricing Sovereign Debt: Foreign Versus Local Parameters (March 2018). European Financial Management, Vol. 24, Issue 2, pp. 261-297, 2018, Available at SSRN: https://ssrn.com/abstract=3135556 or http://dx.doi.org/10.1111/eufm.12161

Michael Bradley (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-8006 (Phone)
919-660-7971 (Fax)

Elisabeth De Fontenay

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Irving De Lira Salvatierra

Duke University

Gaurang Mitu Gulati

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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