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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.

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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. In the beginning of this year, the total par value of all CCC-rated bonds were $12 ...

    The correct answer is: d) (i) Default Loss Rate = [($1.3 billion - $625 million)/$1.3 billion] = 51.9% (ii) Dollar Default ... Read Answer >>
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