PT  - JOURNAL ARTICLE
AU  - J. Benson Durham
ED  - Cubberley, Doug
TI  - Practical Applications of What Do Sovereign Spreads Say About Expected Defaults and Devaluations? <em>An Application to the European Sovereign Debt Crisis</em>
AID  - 10.3905/pa.2014.2.2.071
DP  - 2014 Oct 31
TA  - Practical Applications
PG  - 1--4
VI  - 2
IP  - 2
4099  - https://pm-research.com/content/2/2/1.6.short
4100  - https://pm-research.com/content/2/2/1.6.full
AB  - What Do Sovereign Spreads Say About Expected Defaults and Devaluations? An Application to the European Sovereign Debt Crisis J. Benson Durham How will the fallout from the sovereign debt crisis play out over time, and what affect will it have on the euro? According to J. Benson Durham , there aren’t any easy answers.The author, a Policy Advisor in the Markets Group at the Federal Reserve Bank of New York , uses two valuation methods to gauge the likelihood of default and devaluation in order to provide some insight into pricing and help manage expectations.“If sovereign bond spreads are saying the expected path of monetary policy diverges between two countries in a currency union, then investors must put some odds on a devaluation,” advises Durham. But if the implied odds reflect or understate the true likelihood of devaluation, the converse recommendation applies in full force. TOPICS: Factor-based models, statistical methods, in portfolio management