TY - JOUR T1 - Default and Recovery Rates of Sovereign Bonds JF - The Journal of Fixed Income SP - 97 LP - 108 DO - 10.3905/jfi.2005.591613 VL - 15 IS - 2 AU - Jochen R. Andritzky Y1 - 2005/09/30 UR - https://pm-research.com/content/15/2/97.abstract N2 - Uncertainty about the expected recovery value is a main caveat when pricing credit-contingent claims in reduced-form models. This article introduces an empirical model of the bond price that allows the simultaneous estimation of both default intensity parameters and recovery rates. The model addresses some peculiarities of risky sovereign debt. Although under distress sovereign bond prices do not necessarily converge to par at maturity, recent experience from coercive restructurings shows that recovery is comprised mostly of an equal compensation to all bondholders. A parsimonious model with these features is applied to a case study of the Argentine debt crisis of 2000–2002. The resulting recovery value estimated from Argentine global bonds starts out above 50% and falls to 25% after default. The arrival of a USD 40 billion aid package arranged by the IMF appears to raise the recovery ratio while leaving the implied default parameters mostly unaffected. This provides evidence that bond investors did not believe in this cure. ER -