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Make-Wholes in Sovereign Bonds (Not sure why they are there, but they may be free)

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  • Panizza, Ugo
  • Gulati, Mitu

Abstract

Unnoticed in the literature on sovereign bonds, an innovation has been taking place over the past decade and a half. Starting with a single issuance in 2006 by Mexico and two issuances by Brazil in 2007, a small number of issuers have been using what are known as “doomsday†or “make whole†call provisions. These are call options set deep out of the money at issuance, and therefore unlikely to ever be triggered. We report the birth and evolution of the clause over the past fifteen years and ask what drove its application to sovereign bonds. We also estimate its cost for the issuing country. It turns out, at least thus far, that it is free.

Suggested Citation

  • Panizza, Ugo & Gulati, Mitu, 2020. "Make-Wholes in Sovereign Bonds (Not sure why they are there, but they may be free)," CEPR Discussion Papers 14575, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14575
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    Keywords

    Make-whole call; Doomsday call; Sovereign bonds;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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