The sovereign ceiling and emerging market corporate bond spreads [An article from: Journal of International Money and Finance]

This digital document is a journal article from Journal of International Money and Finance, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
We use the spreads of emerging market bonds traded in secondary markets to study investors' perception of country risk. Specifically, we ask whether investors apply the ''sovereign ceiling,'' which says that no firm is more creditworthy than its government. To do this we compare the spreads of bonds issued by firms to those of bonds issued by the firms' home governments. We find several cases where a firm's bond trades at a lower spread than that of the firm's government, indicating that investors do not always apply the sovereign ceiling. Bonds for which this is true tend to have substantial export earnings and/or a close relationship with either a foreign firm or with the home government.