Differences between international and national creditors

Question

When considering a nations debt, how does it affect the nation whether its debt is held by national or international creditors? If there is preference does this translate into different prices for the debt?

Answer 1

I think it's going to be hard to compare the price for a country with a large internal creditors and another one without, as such a price depends on many parameters apart from that.

But to answer the core of your question, it does have an influence. In many European countries, the public debt is considered a huge problem since the 2007-2008 crisis at it reaches the 100% of GDP. And it is a problem because, those countries have to spend a huge amount of the GDP to pay back that debt, with interests. They can't default without having much higher prices (see Greece, Spain or Italy around 2010). The 100% of GDP is a virtual barrier that is considered critical by many investors or specialised press.

In contrast, a country with a large part of national creditors, Japan, currently run with 217% of its GDP debt. Yet the market for the government bonds in Japan is quite stable.

This might crudely be explained by a link between the two elements of the debt. National have all interests that their own government functions. If their own government has money, they can invest in their economy, which profits directly the investors. If the investors are abroad, they would be less affected by a slow down or a crash or the economy, and thus ask for higher prices to compensate for the risk of defaults.