Sovereign Risk and Secondary Markets

Broner, Fernando; Martín, Alberto; Ventura, Jaume

doi:10.1257/aer.100.4.1523

Cited by 256 publications

(172 citation statements)

References 47 publications

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“…Panel (b) of Figure 5 shows that for our sample not only the proportion of covered bonds sold to foreign investors has declined but also the absolute amount. 8 This is in line with the theory by Broner et al (2010), where foreign creditors face higher risk and will therefore reduce their exposure if confidence weakens.…”

Section: Primary Market For Covered Bondssupporting

confidence: 72%

“…There is a question to what extent the yield increase is permanent and to what extent it may be transitory. Broner et al (2010) argue that that foreigners sell a country's assets during crises to domestic investors, potentially leading to price pressure and thus higher measured spreads. This could be consistent with a part of the yield increase being transitory.…”

Section: Potential Costsmentioning

confidence: 99%

See 1 more Smart Citation

Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation

Randl

Zechner

2018

German Economic Review

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This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co-owned by the regional government of Carinthia, had been nationalized by Austria's central government in order to avoid a default triggering multi-billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.

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Section: Primary Market For Covered Bondssupporting

confidence: 72%

Section: Potential Costsmentioning

confidence: 99%

Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation

Randl

Zechner

2018

German Economic Review

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“…Above these thresholds default is however undetermined as it depends on whether a country can still avoid a liquidity crisis. Broner et al (2010) have recently extended this theoretical literature by considering the role of secondary markets in determining sovereign default events.…”

Section: Theorymentioning

confidence: 99%

Sovereign credit ratings in the European Union: A model-based fiscal analysis

Polito

Wickens

2015

European Economic Review

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a b s t r a c tWe present a model-based measure of sovereign credit ratings derived solely from the fiscal position of a country: a forecast of its future debt liabilities, and its potential to use fiscal policy to repay these. We use this measure to calculate credit ratings for 14 European countries over the period 1995-2012. This measure identifies a European sovereign debt crisis almost two years before the official ratings of the credit rating agencies.

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“…Most closely related to our analysis is the paper by Gennaioli, Martin, and Rossi (2010), who also consider a model where public default weakens the balance sheet of banks who hold public bonds, causing a decline in private credit. As in Broner, Martin, and Ventura (2010), they and we assume that sovereign debt is traded between residents and nonresidents in secondary markets, which prevents selective defaults on foreign creditors. They highlight two empirical facts that are consistent with their model (and ours): (i) public defaults are followed by large contractions in private credit, and (ii) these contractions are more severe in countries where banks hold more public debt.…”

mentioning

confidence: 99%