Browse CFA Level 2

Chapter 14: Sovereign Debt and Fiscal Dynamics

In this section

  • Fiscal Deficits and Debt Sustainability
    Explore how fiscal deficits evolve into public debt challenges, examining primary and overall deficits, debt accumulation dynamics, and the interplay of growth rates and borrowing costs.
  • Sovereign Credit Ratings and Default Risk
    Explore how sovereign credit ratings affect bond yields, investor sentiment, and default risk, along with methods agencies use to assess a country’s creditworthiness.
  • Debt Monetization and Inflation Pressures
    Explore the concept of debt monetization, how it differs from quantitative easing, and understand the inflationary risks it can bring. This comprehensive guide examines historical examples, the transmission mechanism, market reactions, and key strategies for CFA Level II candidates.
  • Market Perceptions of Sovereign Risk
    Examine how global markets gauge sovereign creditworthiness through yield spreads, CDS contracts, and currency forwards, incorporating liquidity conditions, risk appetite, and real-world case studies.
  • Item Set Exploration: Public Debt Implications
    Learn how to evaluate sovereign debt sustainability using real-world fiscal and macroeconomic data in a vignette-style format, focusing on deficits, inflation, central bank intervention, and rating catalysts.
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