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Abstract

Unnoticed in the literature on sovereign bonds, a number of issuers have begun using 'doomsday' or 'makewhole call provisions. These are call options set deep out of the money at issuance. This article documents the birth and evolution of these provisions in the sovereign market. Among the earliest users of the clause were Mexico and Brazil in 2006 and 2007. They were then followed by a number of other sovereign issuers from Latin America and the Caribbean. However, there has as yet been little use of the clause in the European, Asian and African markets. The article also estimates the rough cost of including such a provision for sovereign issuers. Best we can tell, the markets charge close to nothing for the inclusion of such provisions.

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