Why governments issue Eurobonds
Many governments, particularly in emerging and frontier markets, borrow in US dollars or euros because international investors are willing to lend for longer and in larger amounts than the domestic market can provide. A sovereign Eurobond also sets a reference price that local banks and companies can use for their own borrowing.
What analysts look at
- Economic growth, inflation and the size of the economy.
- Government debt and deficits relative to GDP and revenue.
- External position: current account, foreign-exchange reserves and the share of debt in foreign currency.
- Institutional strength, political stability and policy track record.
- Access to support from the IMF and other official lenders.
Benchmarks
Hard-currency emerging-market sovereign bonds are commonly measured against indices such as J.P. Morgan's EMBI family. Inclusion in an index matters because many funds track or benchmark against it.
Restructuring
Governments cannot be put into bankruptcy. If a sovereign cannot pay, it negotiates with creditors, often alongside an IMF programme. Modern sovereign bonds contain collective action clauses (CACs) that allow a qualified majority of holders to agree changes binding on all holders, which reduces the risk of a small group blocking a deal.