Sovereign Debt Restructurings
Looking forward, we expect emerging markets’ activity to gain dynamism. This trend will contrast with the previous five years’ average and will be buoyed by a weakening US Dollar cycle. This overarching view is tempered by concentrated pockets of severe debt distress within non-systemic EM countries.
In this report we ask three closely related questions with clear investment implications for distressed sovereign credit:
1) What macroeconomic and financial indicators are the most useful to identify sovereigns at risk of default?
2) What are the factors that determine the size of the haircuts in a sovereign restructuring?
3) How do defaults and debt restructurings impact debt characteristics?
Finally, we apply the framework to evaluate investments in Argentine, Ecuadorian, and Lebanese sovereign debt.
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