Financial Risk

Odious Debt

Sovereign debt has to meet three specific criteria to be declared “odious”. Indeed, the odious character of debt induces a higher default risk and bondholders are likely to require an odious risk premium.

 Table 1: Sovereign debt repudiated for their alleged odious character

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Cet article est extrait de
Banque & Stratégie n°326

ESCP Europe Applied Research Papers 2

Sovereign debt has a dual image. On one side, sovereign debt is regarded as a low-risk asset. The reasoning behind it is that a government cannot go bankrupt and could always find a way to meet its financial obligations by increasing taxes or printing money. In this line of thinking, the United States sovereign debt is often seen as the risk-free asset in finance textbooks. On the other hand, sovereign debt defaults exist, are not seldom and involve large amounts. Sovereign debt and default risk have always been considered as an important part of financial markets, but recently, they have ...
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