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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Sign up to join this communityIf 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?
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.