Search Investopedia

Sovereign Debt

Filed Under » , ,
Dictionary Says

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.
Investopedia Says

Investopedia explains '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.

Related Definitions

  • Lesser-Developed Country - LDC

    A country that is considered lacking in terms of its economy, infrastructure and industrial base. The population of a lesser-developed country often has a relatively low standard of ...
    Read More »

  • Sovereign Risk

    The risk that a foreign central bank will alter its foreign-exchange regulations thereby significantly reducing or completely nulling the value of foreign-exchange contracts.
    Read More »

  • Country Risk

    A collection of risks associated with investing in a foreign country. These risks include political risk, exchange rate risk, economic risk, sovereign risk and transfer risk, which is ...
    Read More »

    • Default

      1. The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are ...
      Read More »

    • Political Risk

      The risk that an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in ...
      Read More »

    • Sovereign Default

      A failure on the repayment of a county's government debts. Countries are often hesitant to default on their debts, since it will be difficult and expensive to borrow funds after a ...
      Read More »

    • Sovereign Credit Rating

      The credit rating of a country or sovereign entity. Sovereign credit ratings give investors insight into the level of risk associated with investing in a particular country and also ...
      Read More »

    • Emerging Market Economy

      A nation's economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and ...
      Read More »

    • Emerging Markets Bond Index - EMBI

      A benchmark index for measuring the total return performance of international government bonds issued by emerging market countries that are considered sovereign (issued in something ...
      Read More »

    • Restructuring

      A significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions