New study reveals how creditor hierarchy impacts sovereign default risk.
The article discusses how the seniority of creditors affects the risk of countries in the euro area defaulting on their debt. By looking at lessons from past debt crises, the researchers created a new way to measure the credit risk of these countries. They found that considering the priority of creditors can greatly improve our ability to predict sovereign credit risk. This new method uses a mix of financial data and market information to better understand the risk of countries not being able to pay back their debts.