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Strategic Considerations for First-Time Sovereign Bond Issuers

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  • Magdalena Polan
  • Udaibir S. Das
  • Michael G. Papaioannou
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    Abstract

    The recent round of debt relief has restored debt sustainability in many low-income countries (LICs). This, along with a continued search for yield and desire for portfolio diversification by investors, has increased the range of viable financing options, including international bonds, for many emerging market (EM) economies and LICs. This paper presents some of the advantages and disadvantages of international debut bonds, within a debt sustainability framework. It outlines key preconditions and discusses strategic considerations that countries need to take into account when contemplating bond issuance in international markets for the first time. In this context, the paper also discusses some typical pitfalls in accessing international capital markets, including excessive issue size relative to the intended use of bond proceeds, issuance of bullet bonds, and inadequate preparation for accessing the markets.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/261.

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    Length: 27
    Date of creation: 01 Nov 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/261

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    Related research

    Keywords: Sovereign debt; External debt; Emerging markets; Debt relief; Debt sustainability; Low-income developing countries;

    This paper has been announced in the following NEP Reports:

    References

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    1. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
    2. Michael Kremer & Seema Jayachandran, 2002. "Odious Debt," NBER Working Papers 8953, National Bureau of Economic Research, Inc.
    3. Robert F. Dittmar, 2008. "Do Sovereign Bonds Benefit Corporate Bonds in Emerging Markets?," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 1983-2014, September.
    4. Pierre-Richard Ag├łnor, 2003. "Benefits and Costs of International Financial Integration: Theory and Facts," The World Economy, Wiley Blackwell, vol. 26(8), pages 1089-1118, 08.
    5. Mauro, Paolo & Sussman, Nathan & Yafeh, Yishay, 2007. "Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 1870-1913 and Today," OUP Catalogue, Oxford University Press, number 9780199226139.
    6. David A. Grigorian, 2003. "On The Determinants of First-Time Sovereign Bond Issues," IMF Working Papers 03/184, International Monetary Fund.
    7. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    8. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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