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Pricing Sovereign Debt: Foreign versus Local Parameters

Author

Listed:
  • Michael Bradley
  • Elisabeth de Fontenay
  • Irving Arturo de Lira Salvatierra
  • Mitu Gulati
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.

Suggested Citation

  • Michael Bradley & Elisabeth de Fontenay & Irving Arturo de Lira Salvatierra & Mitu Gulati, 2018. "Pricing Sovereign Debt: Foreign versus Local Parameters," European Financial Management, European Financial Management Association, vol. 24(2), pages 261-297, March.
    • Handle: RePEc:bla:eufman:v:24:y:2018:i:2:p:261-297
    DOI: 10.1111/eufm.12161
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    References listed on IDEAS

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    5. Elisabeth de Fontenay & Josefin Meyer & Mitu Gulati, 2019. "The sovereign debt listing puzzle," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 472-495.

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