The Sovereign Ceiling and Emerging Market Corporate Bond Spreads
AbstractWe use the spreads of emerging market bonds traded in secondary markets to study investors’ perception of country risk. Speci...cally, we ask whether investors apply the “sovereign ceiling,” which says that no ...rm is more creditworthy than its government. To do this we compare the spreads of bonds issued by ...rms to those of bonds issued by the ...rms’ home governments. We ...nd several cases where a ...rm’s bond trades at a lower spread than that of the ...rm’s government, indicating that investors do not always apply the sovereign ceiling. Bonds for which this is true tend to have substantial export earnings and/or a close relationship with either a foreign ...rm or with the home government. For countries with lower perceived default risk, we ...nd that investors do not believe that whenever the government defaults, the ...rm will default.
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Bibliographic InfoPaper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 127286.
Date of creation: Jun 2002
Date of revision:
Other versions of this item:
- Durbin, Erik & Ng, David, 2005. "The sovereign ceiling and emerging market corporate bond spreads," Journal of International Money and Finance, Elsevier, vol. 24(4), pages 631-649, June.
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- Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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