Brady bonds are dollar-denominated bonds, issued mostly by Latin American countries in the late 1980s. The bonds were named after U.S. Treasury Secretary Nicholas Brady, who proposed a novel debt-reduction agreement for developing countries. History Brady bonds were created in March 1989 to convert bank loans, mostly in Latin America, into a variety or "menu" of new bonds after many countries defaulted on their debt in the 1980s. At the time, the market for emerging markets' sovereign debt was small and illiquid, and the standardization of emerging-market debt facilitated risk-spreading and trading. In exchange for commercial bank loans, the countries issued new bonds for the principal sum and, in some cases, unpaid interest. Because they were tradable and came with some guarantees, they were sometimes more valuable to the creditors than the original bonds. The key innovation behind the introduction of Brady Bonds was to allow the commercial banks to exchange their claims on developing countries into tradable instruments, allowing them to get the debt off their balance sheets. This reduced the concentration risk to those banks. In the second round, creditors converted their existing claims into their choice among the "menu" of options agreed upon in the first round. The penalties for creditors failing to comply with the terms of the deal were never made explicit. Nevertheless, compliance was not an important problem under the Brady Plan. Banks wishing to cease their foreign lending activities tended to choose the exit option under the auspices of the deal. By offering a "menu" of options, the Brady Plan permitted credit restructurings to be tailored to the heterogeneous preferences of creditors. The terms achieved under the deals indicate that debtors used the menu approach to reduce the cost of debt reduction. Furthermore, it reduced the holdout problem in which certain shareholders have an incentive not to participate in the restructuring in the hope of getting a better deal. The principal amount was usually collateralized by specially issued US Treasury 30-year zero-coupon bonds purchased by the debtor country using a combination of International Monetary Fund, World Bank, and the country's own foreign currency reserves. Interest payments on Brady bonds, in some cases, are guaranteed by securities of at least double-A-rated credit quality held with the Federal Reserve Bank of New York. Countries that participated in the initial round of issuing Brady bonds were Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Mexico, Morocco,