Please Sir, May I Read the Contract?

Sovereign bonds are sold after distribution of a sales document -- a prospectus or offering circular -- that describes key risk factors and that summarizes or reprints the terms and conditions of the bonds. The sales document isn't the contract, or at least not the whole thing, because it typically makes clear investors will be bound by terms found elsewhere, such as a fiscal agency agreement. But these other documents often aren't given to prospective investors. Even after buying, the investor may have to jump through hoops to get a peek at the fiscal agency agreement -- e.g., physically going to Luxembourg to read (but not copy) the document. And, if the investor doesn't like what they see, they have no right to return the bond. We've always been puzzled and a bit irritated at these practices but have assumed that investors are bound by the terms in the fiscal agency agreement. But... is that really so clear? If terms aren't disclosed in advance, and there is no right to return once the terms are disclosed, then it doesn't seem clear at all.

Producer: Leanna Doty