3 Issuing costs of state guaranteed bonds - Financial Risk and ...
3 Issuing costs of state guaranteed bonds - Financial Risk and ...
3 Issuing costs of state guaranteed bonds - Financial Risk and ...
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Figure 6: <strong>Issuing</strong> cost by sovereign rating, SG <strong>bonds</strong><br />
<strong>Issuing</strong> cost, z-spread/zero discount margin<br />
0 50 100 150 200 250 300<br />
Source: Bloomberg <strong>and</strong> Bankscope<br />
State <strong>guaranteed</strong> <strong>bonds</strong><br />
2 Overview <strong>of</strong> <strong>state</strong> guarantee schemes<br />
AAA AA+ A+ BBB+ BBB- BB+<br />
Sovereign rating<br />
Given the above, investors may view the credit risk <strong>of</strong> SG <strong>bonds</strong> to be more closely correlated with<br />
sovereign credit ratings. Other studies have found that "strong" Member States may be propping<br />
up "weak" financial institutions (Levy <strong>and</strong> Schich, 2010).<br />
2.5.3 Grace periods<br />
Given the relative importance <strong>of</strong> sovereign credit ratings over issuer credit ratings to issuing <strong>costs</strong>,<br />
the exact terms <strong>of</strong> compensation in the event <strong>of</strong> issuer default may well be important – that is,<br />
whether procedures in the event <strong>of</strong> default are explicit <strong>and</strong> the length <strong>of</strong> time between default<br />
<strong>and</strong> payment to the investor is specified.<br />
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