The Seniority Structure of Sovereign Debt

63 Pages Posted: 30 Apr 2019

See all articles by Matthias Schlegl

Matthias Schlegl

Sophia University - Faculty of Economics; Institute of Social and Economic Research, Osaka University

Christoph Trebesch

Kiel Institute for the World Economy; Centre for Economic Policy Research (CEPR)

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: April 2019

Abstract

Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions like the IMF and World Bank are senior creditors.

Keywords: Arrears, IMF, Insolvency, International financial architecture, official debt, Pecking order, priority, Sovereign bonds, sovereign default

JEL Classification: F3, F4, F5, G1

Suggested Citation

Schlegl, Matthias and Trebesch, Christoph and Wright, Mark L.J., The Seniority Structure of Sovereign Debt (April 2019). CEPR Discussion Paper No. DP13692, Available at SSRN: https://ssrn.com/abstract=3379607

Matthias Schlegl (Contact Author)

Sophia University - Faculty of Economics ( email )

Tokyo, 102
Japan

Institute of Social and Economic Research, Osaka University ( email )

6-1 Mihogaoka
Ibaraki Osaka 567-0047
Japan

Christoph Trebesch

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Mark L.J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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