Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs?

Marcos Chamon (), Julian Schumacher and Christoph Trebesch

No 7137, CESifo Working Paper Series from CESifo

Abstract: Governments often issue bonds in foreign jurisdictions, which can provide additional legal protection vis-à-vis domestic bonds. This paper studies the effect of this jurisdiction choice on bond prices. We test whether foreign-law bonds trade at a premium compared to domestic-law bonds. We use the euro area 2006-2013 as a unique testing ground, controlling for currency risk, liquidity risk, and term structure. Foreign-law bonds indeed carry significantly lower yields in distress periods, and this effect rises as the risk of a sovereign default increases. These results indicate that, in times of crisis, governments can borrow at lower rates under foreign law.

Keywords: sovereign debt; creditor rights; seniority; law and finance (search for similar items in EconPapers)
JEL-codes: F34 G12 K22 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-law and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Foreign-law bonds: Can they reduce sovereign borrowing costs? (2018)
Journal Article: Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2018)
Working Paper: Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2018)
Working Paper: Foreign-law bonds: can they reduce sovereign borrowing costs? (2018)
Working Paper: Foreign-law bonds: Can they reduce sovereign borrowing costs? (2018)
Working Paper: Foreign Law Bonds: Can They Reduce Sovereign Borrowing Costs? (2015)
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