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. Sovereign Bond Yield

    Sovereign bond yield is the interest rate paid on a government ...
  3. Default Probability

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

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

    The credit rating of a country or sovereign entity. Sovereign ...
  6. Credit Default Contract

    Security with a risk level and pricing based on the risk of credit ...
Related Articles
  1. Bonds & Fixed Income

    The Risks Of Sovereign Bonds

    Sovereign debt can play an important role in providing international diversification to individual investors.
  2. Investing

    The History of Sovereign Debt Relief

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

    What Happens in a Default?

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

    Understanding Default Risk

    Default risk is the chance that companies or individuals will be unable to pay their debts.
  5. Bonds & Fixed Income

    Junk Bond

    Find out more about these bonds that have a high risk of default.
  6. Economics

    Will Argentina Default Again?

    Does a Manhattan judge's recent ruling putting Argentina on the hook for $6.1 billion in payments for its sovereign bonds increase chances of another default by South America's third-largest ...
  7. Mutual Funds & ETFs

    Top 4 International Treasury Bond ETFs (BWX, EMB)

    Learn about the top four international treasury bond funds that hold sovereign foreign bonds, which can be denominated in U.S. dollars and local currencies.
  8. Economics

    Will Alex Tsipras Change The European Economy?

    A debt default and a Euro exit by Greece's leaders would likely cause more harm to Greece's economy than to the EU, of which Greece is just a small part.
  9. Forex

    One Nation's Debt Is Another's Trade Set-Up

    Though economists may view sovereign debt in terms of numbers, Kathy Lien says it's also a sentiment gauge, and successful recent debt auctions have kept euro traders bullish.
  10. Mutual Funds & ETFs

    Top 3 German Bonds ETFs (GGOV, BNDX)

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and private bonds issued by Germany with different duration yields.
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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center