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Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. National Debt Explained: History and Costs. Partner Links. Related Terms Sovereign Risk Sovereign risk is the risk that a foreign government will default on their bonds or impose foreign exchange regulations that harm FX contracts' value.
What Is a Global Bond? A global bond is a type of bond issued and traded outside the country where the currency of the bond is denominated in. Learn About the European Sovereign Debt Crisis The European debt crisis refers to the struggle faced by Eurozone countries in paying off debts they had accumulated over decades. This is when the country cannot repay its debt, which typically takes the form of bonds. So if the US were to default, it would essentially stop paying the money it owed US Treasury bond holders.
A quick refresher: the US government spends more money than it collects in taxes. So to make up the shortfall, it raises funds by asking investors to buy US Treasury bonds. Investors, such as the Chinese government and pension funds, do this because these bonds are seen as a safe place to invest money.
No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise. This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease. And the yield - the return the government pays to an investor - would rise.
This is because it would be perceived as a less safe investment. But if government decides it is not going to pay creditors, then presumably it's not going to go the route of selling assets to try to raise money to pay them, adds Amyot. Earlier Greek austerity measures included a round of asset sales that was supposed to raise 50 billion euros by selling state-owned companies.
To get a good price, they couldn't sell them instantly. The International Swaps and Derivatives Association in New York determines what is a default, says Amyot, but for the limited purpose of triggering credit default swaps, a kind of insurance that is taken out by lenders.
In practice, there's no difference between a voluntary haircut and a default where the creditors are given only 30 per cent or something of the face value. When the ISDA says a "credit event" has taken place, that would trigger payment of default insurance taken out on a country's bonds.
In the current situation, though, the European Parliament has banned credit default swaps on the debt of sovereign nations, effective December If the Greek government was to default, any Greek debt that its banks held would be written down and assessed by accountants at a much lower figure, says Amyot. If the Greek default turned out to be disorderly, like Argentina's, Greece might face a backlash from the rest of Europe, says Shenfeld.
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Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Portfolio Management International Investing. By Justin Kuepper Full Bio LinkedIn Twitter Justin Kuepper is a financial analyst, journalist, and private investor with over 15 years of experience in the domestic and international markets.
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