Trustees versus fiscal agents and default risk in international sovereign bonds
AbstractOver the last ten years, organisations such as the IMF have launched several initiatives to change market practice with respect to sovereign bond contract drafting to ease restructuring after defaults. The first of these, the universal adoption of collective action clauses, was embraced by the market after some hesitation. Another proposal - the more widespread appointment of trustees to represent bondholders in times of crisis, to centralise enforcement action against the debtor and thus to facilitate debt relief - has so far failed to have the desired impact. Amongst other potential reasons for this failure, the argument has been made that to vest enforcement rights in the trustee, as opposed to individual bondholder rights, would be to reduce the deterrence against opportunistic defaults and thus to exacerbate moral hazard. Using a sample of secondary market bond spreads and information on default status, this paper assesses empirically whether sovereign bonds issued under a trust structure indeed carry a higher default risk. It finds no systematic evidence of either a spread premium or higher actual default rates for bonds with collective enforcement rights.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 35332.
Date of creation: 23 Dec 2010
Date of revision:
trustee; fiscal agent; sovereign bonds; default; moral hazard; collective action clauses;
Other versions of this item:
- Häseler, Sönke, 2010. "Trustees versus Fiscal Agents and Default Risk in International Sovereign Bonds," MPRA Paper 21918, University Library of Munich, Germany.
- K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- TÃ¶rbjÃ¶rn I. Becker & Anthony J. Richards & Yunyong Thaicharoen, 2001.
"Bond Restructuring and Moral Hazard: Are Collective Action Clauses Costly?,"
IMF Working Papers
01/92, International Monetary Fund.
- Becker, Torbjorn & Richards, Anthony & Thaicharoen, Yunyong, 2003. "Bond restructuring and moral hazard: are collective action clauses costly?," Journal of International Economics, Elsevier, vol. 61(1), pages 127-161, October.
- Eichengreen, Barry & Mody, Ashoka, 2000.
"Would collective action clauses raise borrowing costs? - an update and additional results,"
Policy Research Working Paper Series
2363, The World Bank.
- Eichengreen, Barry & Mody, Ashoka, 2000. "Would Collective Action Clauses Raise Borrowing Costs? An Update and Additional Results," Center for International and Development Economics Research, Working Paper Series qt46p4z4c4, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen & Ashoka Mody, 2001. "Would Collective Action Clauses Raise Borrowing Costs? An Update and Additional Results," International Finance 0012003, EconWPA.
- Portes, Richard, 2004. "Resolution of Sovereign Debt Crises: The New Old Framework," CEPR Discussion Papers 4717, C.E.P.R. Discussion Papers.
- Richards, Anthony & Gugiatti, Mark, 2003.
"Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets,"
Wiley Blackwell, vol. 6(3), pages 415-47, Winter.
- Mark Gugiatti & Anthony Richards, 2003. "Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets," RBA Research Discussion Papers rdp2003-02, Reserve Bank of Australia.
- Michael Bradley & James D. Cox & Mitu Gulati, 2010. "The Market Reaction to Legal Shocks and Their Antidotes: Lessons from the Sovereign Debt Market," The Journal of Legal Studies, University of Chicago Press, vol. 39(1), pages 289-324, 01.
- Andreas Engert & Lars Hornuf, 2013. "Market Standards in Public Sector Debt Contracting," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 11(3), pages 16-20, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.