If a country is ready to default on internal debt and ready to confiscate their citizen's money to pay external liabilities, does that affect the yields of the external debt?
If yes, does that make it higher or lower?
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1$\begingroup$ Interesting question. Unfortunately I think it is too broad because a lot depends on the details. Are the citizens enlightened and disciplined enough to agree to the interal default because it is better for their society than the external default? Or has there been a communist revolution which first defaults on internal debt without the consent of the creditors before turning towards external enemies? Without knowing the exact economic scenario zounds of answers are possible. $\endgroup$– GiskardFeb 18, 2016 at 12:08
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Probably, but it's not visible because a country is usually already in shambles before a default, and data collection for domestic debt crises is poor.
Here is a list of defaults:
http://www.nber.org/papers/w13946
Here's some rate data:
http://www.statistikbanken.dk/statbank5a/SelectVarVal/saveselections.asp
http://www.tradingeconomics.com/argentina/inflation-cpi
https://en.m.wikipedia.org/wiki/Historical_exchange_rates_of_Argentine_currency
There have been many cases where countries default on only internal debt. Argentina did this. I can't find bond data anywhere. But when it defaulted on domestic debt (1989), inflation went up and the currency fell. Which is pretty much the same as an increase in external interest rates.
