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Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?
Author:
Kay Chungnull

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Mr. Michael G. Papaioannou
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 162
Language:
English
Publication Date:
07 Aug 2020
DOI:
https://doi.org/10.5089/9781513526843.001
ISBN:
9781513526843
ISSN:
1018-5941
Pages:
44
Keywords:
WP; collective action clause; yield to maturity; enhanced CACs; sovereign bond
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2020: Issue 162