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What makes an asset a “safe” asset? We study a model where two countries each issue sovereign bonds to satisfy investors’ safe asset demands. The countries differ in the float of their bonds and the fundamental resources available to rollover debts. A sovereign’s debt is safer if its fundamentals are strong relative to other possible safe assets, not merely strong on an absolute basis. If demand for safe assets is high, a large float enhances safety through a market depth benefit. If demand for safe assets is low, then large debt size is a negative as rollover risk looms large.

This article shows that country-level differences in creditor protection affect bond performance around cross-border M&A announcements. Using Eurobonds and a global sample of 1,100 cross-border M&As, we find that the bondholders of bidding firms respond more positively to deals that expose their firm to a jurisdiction with stronger creditor rights and more efficient claims enforcement through courts. Positive creditor protection spillovers are enhanced by now-global jurisdictional cooperation in multinational insolvencies and creditors' ability to do insolvency arbitrage. The spillover effects we observe are stronger for firms with higher asset risk, longer maturity bonds, and a higher likelihood of financial distress.

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio--known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.

This study examines the impact of Eurobonds on carbon dioxide emissions in Africa using a panel dataset. The paper reconsidered the Environmental Kuznets Curve (EKC) and integrated it into Eurobond Environmental Kuznets Curve (EEKC). This study modelled a panel dataset spanning from 2007 to 2018 using all 17 sovereign African countries that have issued Eurobonds. The findings highlight a significant scientific value in exploring Eurobonds as a financing option to reduce carbon dioxide emissions in Africa. Specifically, the study reveals a positive relationship between Eurobond issuance and carbon dioxide emissions at the initial stage of the EEKC. By including the square term of Eurobond, the research identifies the existence of the EEKC in Africa, which supports the EKC theory. These results contribute to the growing body of literature on climate change mitigation and financing strategies in the context of African economies. Moreover, this study fills a critical void in the literature by introducing Eurobonds into the climate financing debate, emphasizing their potential role in financing climate-resilient activities. The study recommends that the issuing of Eurobonds should be linked to climate resilient activities, enabling funds to be directly invested in green sectors of the economy. This novel perspective on Eurobonds as a tool for environmentally sustainable projects adds scientific significance to the discourse on climate finance and sustainable development in Africa. The paper \"Climate Change Mitigation with Eurobonds: An Environmental Kuznets Curve Analysis\" presents a groundbreaking examination of Eurobond issuance's impact on carbon emissions in African countries. By integrating the Environmental Kuznets Curve theory with Eurobond financing, it uncovers insights into Eurobonds' potential for climate change mitigation and sustainable development. This research contributes significantly to climate finance and environmental sustainability discussions by analyzing panel data from 2007 to 2018 across 17 African nations. Initially, Eurobond-funded projects increase carbon emissions, in line with the Environmental Kuznets Curve hypothesis. However, as economies progress, Eurobonds correlate with reduced emissions, suggesting the emergence of an \"Eurobond Environmental Kuznets Curve.\" These findings offer vital guidance for policymakers, advocating for aligning Eurobond issuance with environmental goals and promoting eco-friendly projects. They emphasize the importance of tailored policies that evolve with African countries' economic growth stages, alongside investments in education, domestic initiatives, and environmentally-conscious foreign direct investment. This research lays the groundwork for informed decision-making in climate finance and sustainable development strategies, vital for steering towards more environmentally sustainable paths.

In this paper, we provide new evidence on the determinants of sovereign yield spreads and 'market sentiment' effects in the eurozone in order to evaluate the rationale for a common Eurobond jointly guaranteed by eurozone Member States. We find that default risk is the main driver of yield spreads, suggesting small gains from greater liquidity. Fiscal fundamentals matter in the pricing of default risk but only as they interact with other countries 'yield spreads; that is, with the global risk that the market perceives. More importantly, the impact of this global risk variable is not constant over time, a clear sign of contagion driven by shifts in market sentiment. This evidence points to a discontinuity in the disciplinary role of financial markets. If markets can stay irrational longer than a country can stay solvent, then the role of yield spreads on national bonds as a fiscal discipline device is considerably weakened, and issuing Eurobonds can be economically justified.

This study explores the drivers of secondary market yields of Sub-Saharan African (SSA) sovereign Eurobonds from 2008 to mid-2017. Our results indicate that, beyond global ‘push’ factors, country specific ‘pull’ factors such as inflation and GDP growth matter too for SSA Eurobond performance. A panel error-correction analysis suggests large heterogeneity in the short-term influence of our global and country variables across countries. We find no significant effect of bond-specific factors on yields when push and pull factors are accounted for. By emphasizing the prominence of country variables, reflecting the quality of countries’ macroeconomic management and their economic performance, our results qualify the common view that SSA countries have little control over their market borrowing costs.

Do bond investors demand credit quality or liquidity? The answer is both, but at different times and for different reasons. Using data on the Euro-area government bond market, which features a unique negative correlation between credit quality and liquidity across countries, we show that the bulk of sovereign yield spreads is explained by differences in credit quality, though liquidity plays a nontrivial role, especially for low credit risk countries and during times of heightened market uncertainty. In contrast, the destination of large flows into the bond market is determined almost exclusively by liquidity. We conclude that credit quality matters for bond valuation but that, in times of market stress, investors chase liquidity, not credit quality.