Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?
August 7, 2020
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Summary
This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.
Subject: Bond yields, Bonds, Financial crises, Sovereign bonds, Yield curve
Keywords: collective action clause, enhanced CACs, sovereign bond, WP, yield to maturity
Pages:
44
Volume:
2020
DOI:
Issue:
162
Series:
Working Paper No. 2020/162
Stock No:
WPIEA2020162
ISBN:
9781513526843
ISSN:
1018-5941
