Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 22, 2021 erstellt
Description:
This paper proposes a methodology to price bonds jointly issued by a group of countries—called Eurobonds in the euro-area context. We consider two types of bonds: the first is backed by several and joint (SJG) guarantees, the second features several but not joint (SNJG) guarantees. A crucial ingredient of the underlying pricing model is the fiscal limit, defined as the level of debt beyond which the risk of default is no longer zero. The pricing of the two types of Eurobonds reflects different assumptions regarding the pooling of the countries' fiscal resources and limits. We estimate fiscal limits for the four largest euro-area economies over 2008-2020 and deduce counterfactual Eurobond prices. Amid the euro-debt crisis, 5-year SNJG bond yield spreads would have been about twice larger than SJG ones. Hence, issuing SJG bonds would result in gains at the aggregate level. We finally show that (i) these gains can be shared among countries through post-issuance schemes so that all countries benefit from the issuance of SJG bonds, and that (ii) these redistribution schemes may alleviate the reduction in market discipline resulting from common bond issuances