June 25th, 2014
from the Chicago Fed
[Editor's Note: Pari passu is often used in bankruptcy proceedings where each creditor is paid pro rata in accordance with the amount of his claim. Its meaning is "equally and without preference."]
Pari Passu: Nine letters arranged into four syllables constituting two little Latin words that translate roughly as "on equal footing"; Two little words that may have a giant effect on international capital markets, for good or for ill. For depending on whom one believes, if the interpretation of the pari passu clause in sovereign bond contracts by a judge in the Southern District of New York is allowed to stand, these words will wreak havoc in the market for sovereign debt by causing Argentina to default, hindering future sovereign debt restructuring operations, and leading sovereign bond issuers to abandon the New York markets - or else act as its savior - by strengthening creditor rights and allowing for less risky sovereign borrowing at lower interest rates.