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.


Loading the player...

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. Restructuring

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

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

    The risk that an investment's returns could suffer as a result ...
Related Articles
  1. Mutual Funds & ETFs

    Top 3 Latin America Stock Mutual Funds

    Discover information about some of the most popular mutual funds that offer investors exposure to equities of companies in Latin America.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Germany

    Learn about iShares MSCI Germany, which is a nondiversified exchange traded fund that invests principally in large-cap German companies.
  4. Investing Basics

    Sovereign Wealth Funds - Friend Or Foe?

    With $5.86 trillion in assets as of September 2013, SWFs have a great deal of clout in financial markets. But as the majority of SWFs are located in the Middle East and Asia, whether these largely ...
  5. Economics

    Sovereign Debt Overview

    The national or government debt is a combination of both internal and external debt. The external debt is referred to as Sovereign Debt. Sovereign Debt refers to bonds issued by a nation’s ...
  6. Credit & Loans

    How Countries Deal With Debt

    For many emerging economies, issuing sovereign debt is the only way to raise funds, but things can go sour quickly.
  7. Mutual Funds & ETFs

    An Introduction To Sovereign Wealth Funds

    Countries use sovereign wealth funds to stabilize their economies, but these investments can lack transparency.
  8. Personal Finance

    Investing In Emerging Market Debt

    This asset class has left much of its unstable past behind. Find out how to invest in it.
  9. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  10. Professionals

    Credit Risk Analyst: Job Description and Average Salary

    Learn what credit risk analysts do every day and how much money they make on average, and identify the skills and education needed for this career.
  1. What are the main risks to the economy of a country that has implemented a policy ...

    The main risk to the economy of a country that has implemented a policy of austerity is the potential for a self-reinforcing, ... Read Full Answer >>
  2. Can I buy emerging market bonds on my Roth IRA?

    Almost any security can be purchased within a Roth IRA. With stocks, bonds, mutual funds and even some options contracts, ... Read Full Answer >>
  3. What is the difference between a global fund and an international fund?

    In the English language, "global" and "international" tend to be used interchangeably - hence the confusion in the investing ... Read Full Answer >>
  4. How many free credit reports can you get per year?

    Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
  5. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  6. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center