- Sovereign bond
A sovereign bond is a bond issued by a national
government. Bonds issued by national governments in the country's own currency are also referred as government bonds. Nations with very high or unpredictable inflationor with unstable exchange rates often find it uneconomic to issue bonds in their own currencies and so are forced to issue bonds denominated in more stable foreign currencies. This raises the issue of sovereign default if the nation cannot afford to repurchase the necessary foreign currency at bond repayment time. Due to the risk of default, investors require the bonds to be issued with a higher yield. This makes the debt more expensive to service, increasing risk of default. In the event of default, unlike a corporationor even a municipal subdivision, a nation cannot file for bankruptcy. But on the rare occasions that a default occurs, just as in defaults on corporate bonds, recent practice has been that the defaulting borrower presents an exchange offer to its bond holders in an effort to restructure the sovereign debt, as has been the case in US dollardenominated bonds issued by Peru( 1996) and Argentina( 2001). However, getting the bond holders to accept an exchange offer has become very difficult, something caused by the holdout problem.
During the early 1980s, the sovereign bonds of developing nations were a popular investment for Western banks. These created many problems when some nations found it difficult to repay those bonds.
Emerging market debt
Wikimedia Foundation. 2010.
Look at other dictionaries:
Sovereign Bond — A debt security issued by a national government within a given country and denominated in a foreign currency. The foreign currency used will most likely be a hard currency, and may represent significantly more risk to the bondholder. The… … Investment dictionary
sovereign bond — /sɒvrən ˈbɒnd/ (say sovruhn bond) noun a financial instrument guaranteed by a government … Australian English dictionary
sovereign bond — / sɒvrɪn bɒnd/ noun a bond issued by a government … Dictionary of banking and finance
Sovereign default — A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full. It may be accompanied by a formal declaration of a government not to pay (repudiation) or only partially pay its debts (due… … Wikipedia
Bond (finance) — In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity.… … Wikipedia
Bond duration — Financial markets Public market Exchange Securities Bond market Fixed income Corporate bond Government bond Municipal bond … Wikipedia
Bond market — Financial markets Public market Exchange Securities Bond market Fixed income Corporate bond Government bond Municipal … Wikipedia
Bond convexity — In finance, convexity is a measure of the sensitivity of the duration of a bond to changes in interest rates, the second derivative of the price of the bond with respect to interest rates (duration is the first derivative). In general, the higher … Wikipedia
Sovereign (British coin) — A Gold Sovereign is a gold coin first issued in 1489 for Henry VII of England and still in production as of 2008.cite web |url=http://www.royalmint.com/RoyalMint/web/site/PackedSets/SV07.asp?orderby= pg= thumb=3 |title=2007 Gold Proof Sovereign… … Wikipedia
Sovereign wealth fund — A sovereign wealth fund (SWF) is a state owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds have gained world wide exposure by investing in… … Wikipedia