Sovereign Debt


DEFINITION of 'Sovereign Debt'

Bonds issued by a national government in a foreign currency, in order to finance the issuing country's growth. Sovereign debt is generally a riskier investment when it comes from a developing country, and a safer investment when it comes from a developed country. The stability of the issuing government is an important factor to consider, when assessing the risk of investing in sovereign debt, and sovereign credit ratings help investors weigh this risk.


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BREAKING DOWN 'Sovereign Debt'

An unfavorable change in exchange rates, and an overly optimistic valuation of the payback from the projects that the debt is used to finance, can make it difficult for countries to repay sovereign debt. The only recourse for the lender is to renegotiate the terms of the loan - it cannot seize the government's assets. A country that defaults on its sovereign debt will have difficulty obtaining a loan in the future.

  1. Sovereign Default

    A failure on the repayment of a county's government debts. Countries ...
  2. Sovereign Credit Rating

    The credit rating of a country or sovereign entity. Sovereign ...
  3. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Political Risk

    The risk that an investment's returns could suffer as a result ...
  5. Country Risk

    A collection of risks associated with investing in a foreign ...
  6. Restructuring

    A significant modification made to the debt, operations or structure ...
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