Source of Repayment Proceeds
Sovereign bonds are backed by the “full faith and credit” of the national government and thus by that government’s ability to raise tax revenues and print money. Sovereign bonds denominated in local currency are generally considered the safest of all investments because governments have the power to raise taxes to make interest payments and principal repayments. Thus, it is highly probable that interest and principal will be paid fully and on time. As a consequence, the yields on sovereign bonds are typically lower than those for otherwise similar bonds from other local issuers.
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