Sovereign debt

Sovereign debt is money borrowed by a government.

If a government borrows in its own currency then it usually does so by issuing government bonds or treasury bills. These are very different from government borrowing in foreign currency because they are risk free - whereas many governments have defaulted on foreign currency debt.

Sovereign debt in a foreign currency is not intrinsically greatly different from corporate debt. The same systems of credit ratings are used, although the assessment of risk is rather different. In particular it is subject to sovereign risk and therefore political factors.

The sovereign foreign currency debt of most developed economies is usually low risk. Although it is not safe enough to be treated as risk free, as a government's borrowings in its own currency are, it is often the next best thing.

The credit rating agencies issue credit ratings on governments using the same scale they use for corporate debt.

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