Pricing Sovereign Debt: Foreign Versus Local Parameters
UVA Law Faculty Affiliations
Sovereign bonds may be issued under either local or foreign parameters. This decision involves a tradeoff between the sovereign retaining discretion in managing the issue and relinquishing control to third parties. Examining three key bond parameters − governing law, currency, and stock exchange listing − we find that investors generally consider foreign-parameter debt to be less risky than comparable local-parameter debt issued by same sovereign. By matching the foreign- and local-parameter bonds of sovereigns that have issued both, we find that, with few exceptions, both investment grade and non-investment grade sovereigns are able to issue their foreign-parameter bonds at relatively lower yields.