The Seniority Structure of Sovereign Debt

62 Pages Posted: 7 May 2019

See all articles by Christoph Trebesch

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

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Date Written: May 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 such as the IMF and World Bank are senior creditors.

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Suggested Citation

Trebesch, Christoph and Wright, Mark L.J., The Seniority Structure of Sovereign Debt (May 2019). NBER Working Paper No. w25793. Available at SSRN: https://ssrn.com/abstract=3383292

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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