Board of Governors of the Federal Reserve System

The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.

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Information and Liquidity in the Market for Foreign Currency Denominated Sovereign Bonds, Accessible Data

Figure 1. Bond Payoff With Private Info Regions

Figure 1 illustrates the relationship between a bond’s payoff and the backing value of the bond. The payoff of a bond is the face value as long as the backing value of the bond is above the default value. The region of the backing value that is well above the default value is labeled with No Private Info, High Liquidity. Below the default value, the bond payoff declines linearly with the backing value. This region is labeled with Private Info, Low Liquidity.

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Last Update: December 28, 2020

Accessible Version

Information and Liquidity in the Market for Foreign Currency Denominated Sovereign Bonds, Accessible Data

Figure 1. Bond Payoff With Private Info Regions