Journal of Law, Finance, and Accounting > Vol 1 > Issue 1

The Pricing of Non-Price Terms in Sovereign Bonds: The Case of the Greek Guarantees

Stephen J. Choi, New York University School of Law, USA, Mitu Gulati, Duke University School of Law, USA,
Suggested Citation
Stephen J. Choi and Mitu Gulati (2016), "The Pricing of Non-Price Terms in Sovereign Bonds: The Case of the Greek Guarantees", Journal of Law, Finance, and Accounting: Vol. 1: No. 1, pp 1-40.

Published: 29 Apr 2016
© 2016 S. J. Choi and M. Gulati
Asset pricing: Fixed income securities,  Corporate finance: Corporate financing,  Law and Economics: Torts, Contracts, and Property

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In this article:
1. Introduction
2. The Pricing Tests
3. The Literatures
4. Dataset
5. Empirical Tests
6. Explaining the Puzzle
7. The Fake Greek Yields in the Post Crisis Period
8. Conclusion


In March 2012, Greece conducted one of the biggest and most brutal sovereign debt restructurings ever, asking holders of Greek government bonds to take net present value haircuts of near 80 percent. Greece forced acquiescence to its terms from a large number of its bonds by using a variety of legal strong-arm tactics. With the vast majority of Greek bonds, the tactics worked. There were, however, thirty-six bonds guaranteed by the Greek state, which, because of the weakness of the underlying companies, were effectively obligations of the Greek state. Yet, on these thirtysix bonds, even though Greece desperately needed every euro of respite it could get, no restructuring was even attempted. Why not? The answer we received was that the guarantees escaped the restructuring because their contractual provisions made them much harder to restructure than the ordinary Greek government bonds. Assuming this contract-based claim to be true, the foregoing, in combination with the Euro area crisis of 2010–2014 throws up an opportunity to test the extent to which markets price legal differences in bond contract terms. We report evidence that the markets did price in at least some of the advantage that guaranteed bonds had over ordinary sovereign bonds in the months immediately prior to the March 2012 restructuring.