Forgiven but not Forgotten: Emerging Market Credit Spreads Following Debt Relief

Mikkel Vittrup Hauerberg; David Lando; Aleksander Koldborg Tetzlaff

Forgiven but not Forgotten: Emerging Market Credit Spreads Following Debt Relief

Mikkel Vittrup Hauerberg, David Lando, Aleksander Koldborg Tetzlaff

Institut for Finansiering

Publikation: Konferencebidrag › Paper › Forskning › peer review

Abstract

This paper examines the effects of large-scale debt reliefs aimed at Highly Indebted Poor Countries (HIPC) on the yield spreads of subsequent government debt issues. Due to scarce availability of existing measures, we originate raw data on 3,498 individual fixed-income securities to construct country-specific yield spreads. Our evidence suggests that HIPC governments pay an average yield spread premium of 298 bps on USD-denominated bonds and 128-333 bps on local-currency bonds compared to similar countries, which have not received debt relief. We estimate that the extra credit spread amounts to USD 24bn or roughly 19 pct of their relief. The premium cannot be explained by other common measures of sovereign default risk. We discuss indicators of moral hazard.

Originalsprog	Engelsk
Publikationsdato	2020
Antal sider	71
Status	Udgivet - 2020
Begivenhed	The 47th European Finance Association Annual Meeting. EFA 2020 - Virtual from The Aalto University School of Business, Helsinki, Finland Varighed: 20 aug. 2020 → 21 aug. 2020 Konferencens nummer: 47 https://efa2020.efa-meetings.org/

Konference

Konference	The 47th European Finance Association Annual Meeting. EFA 2020
Nummer	47
Lokation	Virtual from The Aalto University School of Business
Land/Område	Finland
By	Helsinki
Periode	20/08/2020 → 21/08/2020
Internetadresse	https://efa2020.efa-meetings.org/

Adgang til dokumentet

https://www.conftool.com/efa2020/index.php/1908-APE-EFA2020-Forgiven_but_not_forgotten.pdf?page=downloadPaper&filename=1908-APE-EFA2020-Forgiven_but_not_forgotten.pdf&form_id=1908&form_version=finalLicens: Ikke-specificeret

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Citationsformater

Hauerberg, M. V., Lando, D., & Tetzlaff, A. K. (2020). Forgiven but not Forgotten: Emerging Market Credit Spreads Following Debt Relief. Paper præsenteret på The 47th European Finance Association Annual Meeting. EFA 2020, Helsinki, Finland. https://www.conftool.com/efa2020/index.php/1908-APE-EFA2020-Forgiven_but_not_forgotten.pdf?page=downloadPaper&filename=1908-APE-EFA2020-Forgiven_but_not_forgotten.pdf&form_id=1908&form_version=final

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title = "Forgiven but not Forgotten: Emerging Market Credit Spreads Following Debt Relief",

abstract = "This paper examines the effects of large-scale debt reliefs aimed at Highly Indebted Poor Countries (HIPC) on the yield spreads of subsequent government debt issues. Due to scarce availability of existing measures, we originate raw data on 3,498 individual fixed-income securities to construct country-specific yield spreads. Our evidence suggests that HIPC governments pay an average yield spread premium of 298 bps on USD-denominated bonds and 128-333 bps on local-currency bonds compared to similar countries, which have not received debt relief. We estimate that the extra credit spread amounts to USD 24bn or roughly 19 pct of their relief. The premium cannot be explained by other common measures of sovereign default risk. We discuss indicators of moral hazard.",

author = "Hauerberg, {Mikkel Vittrup} and David Lando and Tetzlaff, {Aleksander Koldborg}",

year = "2020",

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Hauerberg, MV, Lando, D & Tetzlaff, AK 2020, 'Forgiven but not Forgotten: Emerging Market Credit Spreads Following Debt Relief', Paper fremlagt ved The 47th European Finance Association Annual Meeting. EFA 2020, Helsinki, Finland, 20/08/2020 - 21/08/2020. <https://www.conftool.com/efa2020/index.php/1908-APE-EFA2020-Forgiven_but_not_forgotten.pdf?page=downloadPaper&filename=1908-APE-EFA2020-Forgiven_but_not_forgotten.pdf&form_id=1908&form_version=final>

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AU - Lando, David

AU - Tetzlaff, Aleksander Koldborg

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N2 - This paper examines the effects of large-scale debt reliefs aimed at Highly Indebted Poor Countries (HIPC) on the yield spreads of subsequent government debt issues. Due to scarce availability of existing measures, we originate raw data on 3,498 individual fixed-income securities to construct country-specific yield spreads. Our evidence suggests that HIPC governments pay an average yield spread premium of 298 bps on USD-denominated bonds and 128-333 bps on local-currency bonds compared to similar countries, which have not received debt relief. We estimate that the extra credit spread amounts to USD 24bn or roughly 19 pct of their relief. The premium cannot be explained by other common measures of sovereign default risk. We discuss indicators of moral hazard.

AB - This paper examines the effects of large-scale debt reliefs aimed at Highly Indebted Poor Countries (HIPC) on the yield spreads of subsequent government debt issues. Due to scarce availability of existing measures, we originate raw data on 3,498 individual fixed-income securities to construct country-specific yield spreads. Our evidence suggests that HIPC governments pay an average yield spread premium of 298 bps on USD-denominated bonds and 128-333 bps on local-currency bonds compared to similar countries, which have not received debt relief. We estimate that the extra credit spread amounts to USD 24bn or roughly 19 pct of their relief. The premium cannot be explained by other common measures of sovereign default risk. We discuss indicators of moral hazard.

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