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Diaspora Bonds

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Diaspora Bonds

Patriotism or Profit?

SSRN,

5 Minuten Lesezeit
3 Take-aways
Audio & Text

Was ist drin?

The dynamics of “diaspora bonds” may have enormous implications for developing economies.

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Editorial Rating

8

Qualities

  • Comprehensive
  • Analytical
  • Innovative

Recommendation

“Diaspora bonds” gain the attention of overseas nationals eager to support their homelands, even at returns lower than those of conventional bonds. Israel is probably the best-known issuer of diaspora bonds. The dynamics of Israel’s financing model suggest a way forward for GDP-indexed bonds – countercyclical debt instruments that would pay more to investors in good economic times and less during downturns. Finance experts Michael Bradley, Irving Arturo De Lira Salvatierra and Mitu Galati analyze the potential impacts of these bonds, particularly for developing economies, in this thorough, insightful report for investors and financial professionals.

Summary

“Diaspora bonds” attract investors, despite the sovereign debt’s lower yields. 

In response to the Hamas attack on Israel on October 7, 2023, Israel issued sovereign debt to fund its war effort. In addition to conventional credit market financing, Israeli officials also sought out funds from overseas nationals and supporters via a program that Israel began in 1951. Interestingly, the rate on these diaspora bonds are lower than the market rates for other Israeli debt.

This dynamic suggests there may indeed be a “countercyclical” financing mechanism at work. Economists and credit market professionals have long sought to bring a GDP-indexed bond to the sovereign debt market. This instrument would tap into countercyclicality: During ...

About the Authors

Michael Bradley is a professor at the Fuqua Business School at Duke University. Irving Arturo De Lira Salvatierra is with IO Quantum. Mitu Gulati is a law professor at the University of Virginia’s Law School.

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