{
  "title": "Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?",
  "publication": "IMF Working Papers, 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.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Research question: Effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs.\n- Empirical approach: Analysis uses secondary-market bond yield spreads.\n- Context note: Enhanced CACs were introduced in August 2014."
    },
    {
      "heading": "Key Findings",
      "content": "- Inclusion of enhanced CACs is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers.\n- Market interpretation: Results indicate market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard.\n- Market interpretation (alternative): Market participants consider CACs’ implied benefits of an orderly and efficient debt resolution process in case of restructuring."
    },
    {
      "heading": "Implications for Markets and Policy",
      "content": "- Enhanced CACs can be seen as reducing sovereign borrowing costs across credit categories (noninvestment-grade and investment-grade).\n- Adoption of enhanced CACs may improve market perceptions about debt-restructuring processes and reduce perceived creditor losses from disorderly restructurings.\n- Policy takeaway: Including enhanced CACs in international sovereign bonds supports market functioning by signaling stronger mechanisms for orderly and efficient debt resolution.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/08/07/do-enhanced-collective-action-clauses-affect-sovereign-borrowing-costs-48960"
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    "Authors: Kay Chung, Michael G. Papaioannou",
    "Published: August 7, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513526843.001",
    "Research question: Effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs.",
    "Empirical approach: Analysis uses secondary-market bond yield spreads.",
    "Context note: Enhanced CACs were introduced in August 2014.",
    "Inclusion of enhanced CACs is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers.",
    "Market interpretation: Results indicate market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard.",
    "Market interpretation (alternative): Market participants consider CACs’ implied benefits of an orderly and efficient debt resolution process in case of restructuring.",
    "Enhanced CACs can be seen as reducing sovereign borrowing costs across credit categories (noninvestment-grade and investment-grade).",
    "Adoption of enhanced CACs may improve market perceptions about debt-restructuring processes and reduce perceived creditor losses from disorderly restructurings.",
    "Policy takeaway: Including enhanced CACs in international sovereign bonds supports market functioning by signaling stronger mechanisms for orderly and efficient debt resolution.",
    "**Working Paper**"
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