This paper examines how declining global interest rates affect sovereign default risk and government borrowing dynamics. The authors develop a framework linking lower interest rates to sovereign debt sustainability, fiscal policy incentives, and the probability of default. The study analyzes how persistent low-rate environments alter governments’ incentives to borrow and repay debt, offering insights into the interaction between macro-financial conditions and sovereign credit risk in modern economies.

Citations

Miller, Max, James D. Paron and Jessica A. Wachter. 2026. Sovereign Default and the Decline in Interest Rates. The Review of Financial Studies (July): hhag025. https://doi.org/10.1093/rfs/hhag025