I have to give you this Alberto: I've never seen anybody who can match your ability to take a misconception and then argue for it so tenaciously and actually quite effectively. In that sense, in spite of your being blatantly wrong, you have my admiration.
I do have a couple of quick questions though.
1. Do you think that stocks should also be guaranteed the same way you are arguing sovereign bonds should? What about other risky investments (venture capital, lottery, casinos...)?
2. Do you understand what such guarantees would do to yields? With global yields at an all-time low, developing market sovereign bonds are one of the few places investors can get a yield over 4%. Do you understand what would happen to investment in developing markets if they could no longer offer those returns because they guaranteed their repayment?
Again, I don't agree with you, but I dig your style.
A1: Stocks, venture capital (meaning: to risk), etc. are well known to be risky as opposed to bonds, thus providing higher yields. The answer is thus
No, financial capital based on stocks, venture, etc. should not be guaranteed, they are by definition risk prone.
Casinos are completely different, as they represent a guaranteed loss. If people could win in a casino, there wouldn't be any casinos. Although a few individuals wins, the majority loses even more to finance the casino and its return on capital.
A2: A guarantee does of course reduce yields. Providing a guarantee in one of the forms I have previously written about (guano, railrods, ...) cost nothing provided the borrower doesn't default on it's debt.
Perhaps you will answer at least some of my outstanding questions?
You claim that "the bonds were
sold at a higher interest rate because of the risk of default"
In this connexion the outstanding question is:
How much higher interest rate than other bonds issued at the same time?
In this thread are a further 10 to 15 unanswered questions. I don't have the energy to list them, as yesterday the temperature was 32C, last night 26C (barely slept), and right now it's 33C.