Entre la peste et le choléra: le détenteur d'obligations peut préférer la répudiation au défaut
AbstractSovereign debts are often subject to payment suspension. Default, i.e. the financial incapacity to fulfil the debt service, and repudiation, i.e. the denial by a sovereign to recognize its legal obligations, are normally used to explain these payment suspensions. Intuitively, for bondholders, defaults should incur the smallest financial losses. In this case, bondholders may indeed hope for either a negotiated solution (leading only to a partial loss), or for a resumption of the debt service if the defaulting state manages to overcome its financial troubles. In the case of repudiations, these two elements are not relevant as repudiations usually go with a complete stop of the negotiation process. Furthermore, when a country repudiates its debt, its pay-back ability does not matter as the debtor government refuses to fulfil its financial obligations. This paper shows, by using two series of bonds (Romanian bonds in default during the 1930â and Russian bonds repudiated in 1918), that there are some situations when the market prices of repudiated bonds may stay above those of defaulted bonds. This counter-intuitive observation is explained by market anticipation of possible events having a strong influence on the repudiated bond prices (bail out of the Russian debt by the French Government or by a country created following the decline of the Tsarist Empire).
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/6693.
Date of creation: 2005
Date of revision:
Publication status: Published in: Revue d'économie financière (2005) v.79,p.309-331
Other versions of this item:
- Kim Oosterlinck & Loredana Ureche-Rangau, 2004. "Entre la peste et le choléra: le détenteur d'obligations peut préférer la répudiation au défaut," Working Papers CEB 04-021.RS, ULB -- Universite Libre de Bruxelles.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
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