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Yeoh, Peter --- "Sovereign Default Risks in the Economic and Monetary Union and the Role of Vulture Funds" [2012] ELECD 248; in Athanassiou, Phoebus (ed), "Research Handbook on Hedge Funds, Private Equity and Alternative Investments" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Hedge Funds, Private Equity and Alternative Investments

Editor(s): Athanassiou, Phoebus

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849802789

Section: Chapter 13

Section Title: Sovereign Default Risks in the Economic and Monetary Union and the Role of Vulture Funds

Author(s): Yeoh, Peter

Number of pages: 21

Extract:

13. Sovereign default risks in the Economic
and Monetary Union and the role of
vulture funds
Peter Yeoh*


INTRODUCTION

The concept of `sovereign debt default risk' refers to the probability that a
sovereign government may be unable or unwilling to repay its public debt
on schedule. The earlier international bank syndicated loans,1 popular
amongst sovereign states for the financing of their liabilities have, since
the late 1980s, given their place to sovereign (`Brady') bonds,2 created to
overcome some of the more troublesome features that consortium lending
packages posed for sovereign creditors. The popularity of sovereign bonds
as a means of financing public debt has to a large extent been facilitated
by the sovereign debt credit ratings issued by the three global credit rating
agencies (CRAs), representing the summary evaluation of the ability and
willingness of sovereign governments to settle their public debt on time
and functioning as indicators of the probability of their default.
Investors have generally associated the risk of sovereign default with
emerging economies. Sovereign debt defaults have, after all, largely
occurred in Latin American, Asian or other transition economies. The
threat of an advanced economy's default did not become apparent until
the emergence of the Icelandic, Dubai and Greek crises. Insights into the
reasons why those economies have faced sovereign debt default risks are
important for academics, investors, policy makers and the general public
alike. This chapter examines some of the reasons for this unusual phe-
nomenon, inquiring into the role that vulture funds ...