How Important Is Sovereign Risk in Determining Corporate Default Premia? The Case of South Africa
IMF Working Papers, November 1, 2005
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- How Important Is Sovereign Risk in Determining Corporate Default Premia? The Case of South Africa
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Bibliographic details
- Authors: Marcel Peter, Martín Grandes
- Published: November 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862362.001
Summary
- The paper analyzes and quantifies the importance of sovereign risk in determining corporate default premia (yield spreads) for South African local-currency-denominated corporate bonds.
- It investigates whether the practice by rating agencies and banks of not rating companies higher than their sovereign ("country or sovereign ceiling") is reflected in corporate bond yields.
Main findings
- Sovereign risk appears to be the single most important determinant of corporate default premia in South Africa.
- The sovereign ceiling (in local-currency terms) does not apply in the spreads of the industrial multinational companies in the sample.
- Consistent with rating agency policy, the sovereign ceiling appears to apply in the spreads of most financial companies in the sample.
Subject areas and keywords
- Subjects: Bonds, Corporate bonds, Debt default, Emerging and frontier financial markets, Sovereign bonds
- Keywords: coupon bond, default probability, emerging market, interest rate, risk premium, WP
Content in this bundle
- Box 1. The Cost of Debt for an Emerging Market Borrower