Diaspora Bonds: Patriotism or Investment?

29 Pages Posted: 7 Feb 2024 Last revised: 9 Feb 2024

See all articles by Michael Bradley

Michael Bradley

Duke University - Fuqua School of Business

Irving De Lira Salvatierra

Duke University

Mitu Gulati

University of Virginia School of Law

Date Written: February 5, 2024

Abstract

In the world of sovereign debt instruments, the Holy Grail is the GDP indexed bond, which is a borrowing instrument that operates counter cyclically. A sovereign would make smaller payments to lenders when times were tough and higher payments during good times. If such products were to be used, the risk of severe and widespread sovereign financial crises could (potentially) be ameliorated. However, attempts to market these products, except in a few pockets, have not prospered. The Israeli diaspora bonds program – while not fitting the conventional conception of a GDP indexed bond -- might have found the magic elixir. Spreads between Israeli diaspora bonds and conventional bonds suggest a countercyclical payment pattern. The Israeli program may be sui generis. But it is also possible that its design contains clues as to how to design a successful countercyclical sovereign financing program.

Keywords: Diaspora Bonds, Sovereign Bonds, GDP-Indexed Bonds

JEL Classification: F21, F34, K12

Suggested Citation

Bradley, Michael and De Lira Salvatierra, Irving and Gulati, Mitu, Diaspora Bonds: Patriotism or Investment? (February 5, 2024). Capital Markets Law Journal (forthcoming), Virginia Public Law and Legal Theory Research Paper No. 2024-15, Virginia Law and Economics Research Paper No. 2024-9, Available at SSRN: https://ssrn.com/abstract=4701663

Michael Bradley

Duke University - Fuqua School of Business ( email )

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

Irving De Lira Salvatierra

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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