Sovereign Default

Loading the player...

DEFINITION of '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 default event. However, sovereign countries are not subject to normal bankruptcy laws and have the potential to escape responsibility for debts without legal consequences.

BREAKING DOWN 'Sovereign Default'

Sovereign defaults are relatively rare, and are often precipitated by an economic crisis affecting the defaulting nation. Investors in sovereign debt closely study the financial status and political temperament of sovereign borrowers in order to determine the risk of sovereign default.

RELATED TERMS
  1. Sovereign Debt

    Bonds issued by a national government in a foreign currency, ...
  2. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  3. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Sovereign Credit Rating

    The credit rating of a country or sovereign entity. Sovereign ...
  5. Sovereign Risk

    The risk that a foreign central bank will alter its foreign-exchange ...
  6. Temporary Default

    A bond rating that suggests the issuer might not make all of ...
Related Articles
  1. Markets

    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.
  2. Managing Wealth

    The Risks Of Sovereign Bonds

    Sovereign debt can play an important role in providing international diversification to individual investors.
  3. Managing Wealth

    Why Your Pension Plan Has Sovereign Debt In It

    One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.
  4. Investing

    The History of Sovereign Debt Relief

    Europe has recently been plagued by sovereign debt crises, sparking bailouts and debt relief measures.
  5. Investing

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  6. Personal Finance

    Understanding Default Risk

    Default risk is the chance that companies or individuals will be unable to pay their debts.
  7. Markets

    Emerging Market Defaults: Beware of Second Wave

    Emerging market corporate defaults have the potential to be the biggest risk to global markets.
  8. Markets

    Investopedia's Forex Outlook For May 2012: European Economy

    Europe Goes From Crisis to ChronicThe eurozone has come a long way since the beginning of the region's sovereign debt crisis. Greece is no longer on the brink of destruction and the euro as a ...
  9. Markets

    How PIIGS Defaults Could Affect The Markets

    What would a default by Europe's PIIGS do to the European and world financial markets, and how would the eurozone cope?
  10. ETFs & Mutual Funds

    EMB: iShares JPMorgan USD Emerg Markets Bond ETF

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
RELATED FAQS
  1. What special powers does the government have to collect student loans?

    Contact student loan companies before student loans default, as the government has the power to get its money. Prior to default, ... Read Answer >>
  2. What level of default rate is typical for the credit services industry?

    Learn how default rates affect businesses in the credit services industry, and what rates are considered normal for a company ... Read Answer >>
  3. What factors are taken into account to quantify credit risk?

    Learn how probability of default, or PD; loss given default, or LGD; and exposure at default, or EAD, are used to help quantify ... Read Answer >>
  4. In what types of financial situations would credit spread risk be applied instead ...

    Find out when credit risk is realized as spread risk and when it is realized as default risk, and learn why market participants ... Read Answer >>
  5. What are the typical day-to-day responsibilities of a Chief Operating Officer (COO)?

    Learn how a country's debt crisis affects the world, including how currency values, inflation and output are affected on ... Read Answer >>
  6. What is the difference between secured and unsecured debt?

    Understand the difference between secured and unsecured debt and how the reliability and trustworthiness of the issuing entity ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center