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Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo
The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.
Federico L. Kaune Moreno and Ms. Elaine Karen Buckberg
Brady bonds offer substantially higher returns than Eurobonds. This paper examines the Brady and Eurobond markets for developing country debt and finds that the apparent arbitrage opportunity is not only smaller than it at first appears, but is infeasible given the illiquidity of the Eurobond market. The maturity adjusted return differential between Brady and Eurobonds is smaller than the commonly cited yield spreads. Moreover, the transactions costs of executing a Eurobond short contract render arbitrage a loss-making proposition. Given the many crossover investors who are active in both the Brady and Euro markets, why do Eurobond investors not trade them actively?
Federico L. Kaune Moreno and Ms. Elaine Karen Buckberg

Brady bonds offer substantially higher returns than Eurobonds. This paper examines the Brady and Eurobond markets for developing country debt and finds that the apparent arbitrage opportunity is not only smaller than it at first appears, but is infeasible given the illiquidity of the Eurobond market. The maturity adjusted return differential between Brady and Eurobonds is smaller than the commonly cited yield spreads. Moreover, the transactions costs of executing a Eurobond short contract render arbitrage a loss-making proposition. Given the many crossover investors who are active in both the Brady and Euro markets, why do Eurobond investors not trade them actively?

Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo

proposed VRIs, and this wedge in valuation has limited their use and left a patchy record of VRIs in past restructurings. In some notable cases VRIs were initially underpriced, leading to ex post debtor regret. The following are three major barriers to the successful implementation of VRIs: Investor preferences . The majority of Eurobond investors are institutional investors and fixed-income mutual funds. Insurance firms and pension funds generally prefer “plain vanilla” fixed-income securities with standard debt contract terms, as these are easy to understand and

International Monetary Fund

, with investors concerned about a further fall in the U.S. dollar and rising interest rates ( Chart 1 ). This led investors to avoid the somewhat illiquid securities of the Eurobond market in favor of domestic bond markets and bank deposits and Eurobond investors to become reluctant to acquire U.S. dollar-denominated debt. This development was also reflected in a relative reduction of private sector financing of the U.S. current account deficit and an increase in official intervention aimed at supporting the dollar. Uncertainty concerning macroeconomic policies was a

International Monetary Fund. African Dept.

the domestic financing markets; and (v) putting in place a communication strategy with Eurobond investors to prepare for refinancing. Staff also encouraged the authorities to improve monitoring of public debt by including contingent liabilities, which may arise mainly from SOEs and PPPs. B. Financial Sector Soundness and Financial Inclusion 23. The financial sector remains fragile . After declining to about 8 percent at end-2016, the banking system’s capital adequacy ratio increased to 15.1 percent at end-March 2019, well above the CEMAC regulatory

International Monetary Fund. African Dept.
This paper presents 2019 Article IV Consultation with Gabon and its Fourth and Fifth Reviews Under the Extended Fund Facility (EFF), and Request for Waiver for NonObservance of Performance Criteria, and Rephasing of the Remaining Purchases. Gabon’s performance under the program supported by the IMF’s EFF Arrangement has been broadly satisfactory. Macroeconomic conditions have continued to improve, with growth slowly picking-up, fiscal and external positions improving, and public debt declining. Going forward, bold and ambitious reforms are needed to generate higher, more inclusive, and resilient growth. Sustained implementation of structural reforms is critical. Efforts to close infrastructure gaps, improve human capital, deepen financial intermediation, clear domestic arrears, and enhance governance and anticorruption measures are necessary to improve the business climate and achieve higher and inclusive growth. Efforts should continue to further boost domestic revenue and contain nonpriority spending, while protecting investment and enhancing social protection. Improving public finance management and the efficiency of public investment is also important for growth prospects.
Mr. Daniel C Hardy

the size of the investor base and thus market liquidity. In particular, low yields on advanced economy securities such as U.S. Treasury bonds may induce investors to “search for yield” in emerging market Eurobonds. This greater demand will not only affect prices but also market activity, as the newcomers search for investments, existing issuers are tempted to offer greater volumes, and new issuers enter the market. Duration will matter to investors. Many Eurobond investors may be interested in relatively long-term assets, but they will be concerned that long

Mr. Daniel C Hardy
Market liquidity is of value to both investors and issuers of securities, and is therefore a crucial factor in asset pricing. For the important asset class of Eurobonds, significant feedback from liquidity to pricing is established, and it is shown that bid-ask spreads (a proxy for market liquidity) and yields are closely related to bond characteristics such as issue volume, time to maturity, the inclusion of collective action clauses, and the jurisdiction of issuance. Debt management offices can choose these characteristics in a way that has economically significant and persistent effects on both liquidity and pricing.
International Monetary Fund. External Relations Dept.
This paper highlights that the IMF, as Trustee for the Trust Fund, held the first of its series of gold auctions on June 2, 1976, with the sale of 780,000 ounces of gold—the total amount offered—at a common price of US$126.00 a fine ounce. The first gold auction was a success from the point of view of both the market and the IMF. In all, a total of 25 million ounces of gold from the IMF’s holdings will be sold at auction over a four-year period.