Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319978 
Authors: 
Year of Publication: 
2015
Series/Report no.: 
CASMEF Working Paper Series No. WP 2015/01
Publisher: 
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract: 
In this paper I develop a model of sovereign lending with default and long-duration coupon bonds. Long-duration bonds offer an insurance benefit to the borrower because countries are not required to frequently roll-over outstanding debt. However, investors anticipate that countries might default in the future and ask for returns that compensate for this risk. In this framework, I find that bonds with longer duration offer higher interest rate spreads. Bonds issued by countries that are more likely to receive negative income shocks when investors' consumption is low have significantly higher interest rate spreads because investors anticipate defaults many periods into the future. Creation-Date: 2015
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.