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

Mikkel Vittrup Hauerberg, David Lando, Aleksander Koldborg Tetzlaff

Research output: Contribution to conferencePaperResearchpeer-review


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.
Original languageEnglish
Publication date2020
Number of pages71
Publication statusPublished - 2020
EventThe 47th European Finance Association Annual Meeting. EFA 2020 - Virtual from The Aalto University School of Business, Helsinki, Finland
Duration: 20 Aug 202021 Aug 2020
Conference number: 47


ConferenceThe 47th European Finance Association Annual Meeting. EFA 2020
LocationVirtual from The Aalto University School of Business
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