Sovereign debt.

In plain English

Sovereign debt is borrowing by a national government, usually through bonds sold to investors at home and abroad. It differs from corporate debt in one structural way: no bankruptcy court can seize a country's assets and hand them to creditors. Repayment depends on the government's ability to tax, its access to new borrowing, and its willingness to pay. Debt issued in the country's own currency behaves differently from debt issued in a foreign currency, because a government can create the first and cannot create the second.

01Why it matters

The interest a government pays competes with everything else in its budget, and the rate it pays sets a floor under what banks, companies, and mortgage borrowers in that country pay.

02The math, step by step

Say a government carries 500 billion dollars of debt at an average 3 percent, which is 15 billion a year in interest. If average rates reach 5 percent as the debt rolls over, interest becomes 25 billion. The extra 10 billion has to come from taxes, other spending, or more borrowing.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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