Sovereign debt is debt issued by foreign governments.
Sovereign debt is unique because analysts and investors will need to evaluate not only the government’s ability to repay (economic risk), but also its willingness to repay (political risk).
Because default rates on sovereign debt issued in foreign currency have been higher than sovereign debt issued in local currency (after all, a government can print its own currency, but not the currency of another country), two separate ratings (a foreign currency rating and a local currency rating) are typically issued for sovereign debt.
While the four C’s approach is relevant to sovereign debt, the principles must be considered in a macroeconomic and political context.
Sovereign debt analysis takes on a more qualitative nature than that of corporate date, which can be more numbers driven. Additionally, audited corporations may report more accurate data to the public than foreign governments.
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- CFA Level 2: Fixed Income Part 1 – Introduction
- Principles of Credit Analysis
- High Yield Corporate Debt (aka Junk bonds)
- Analyzing Credit of Asset Backed Securities
- Analyzing Credit of Municipal Bonds
- Sovereign Debt
- Three Shapes of the Yield Curve
- Parallel and Non-parallel Shifts in Yield Curve
- Factors Driving Treasury Investment Returns and Bond Price Risk
- Yield Curve Construction with Treasuries
- LIBOR Swap Rate Curve
- Theories of the Term Structure of Interest Rates
- Key Rate Duration
- How to Calculate Interest Rate Volatility?
- Benchmark Yield Spreads
- Valuing an Option Embedded Bond using Binomial Interest Rate Tree
- How to Price Convertible Bonds?