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Trustees versus fiscal agents and default risk in international sovereign bonds


  • Häseler, Sönke


Over 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.

Suggested Citation

  • Häseler, Sönke, 2010. "Trustees versus fiscal agents and default risk in international sovereign bonds," MPRA Paper 35332, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35332

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    References listed on IDEAS

    1. 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.
    2. Richards, Anthony & Gugiatti, Mark, 2003. "Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets," International Finance, Wiley Blackwell, vol. 6(3), pages 415-447, Winter.
    3. 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.
    4. 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, January.
    5. Portes, Richard, 2004. "Resolution of Sovereign Debt Crises: The New Old Framework," CEPR Discussion Papers 4717, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Andreas Engert & Lars Hornuf, 2013. "Market Standards in Public Sector Debt Contracting," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(3), pages 16-20, October.
    2. Hornuf, Lars & Engert, Andreas, 2013. "Can Network Effects Impede Optimal Contracting in Debt Securities?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79867, Verein für Socialpolitik / German Economic Association.
    3. Bardozzetti, Alfredo & Dottori, Davide, 2014. "Collective action clauses: How do they affect sovereign bond yields?," Journal of International Economics, Elsevier, vol. 92(2), pages 286-303.

    More about this item


    trustee; fiscal agent; sovereign bonds; default; moral hazard; collective action clauses;

    JEL classification:

    • 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

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