We study the impact of sovereign default risk on the private–public savings offset. Using data on 80 countries for the period 1989–2010, we find robust evidence for a U-shaped pattern in the private–public savings offset in foreign currency sovereign credit ratings. While Ricardian Equivalence holds approximately at intermediate levels of sovereign solvency, it breaks down at very low and very high levels of sovereign default risk. In particular, the U-shaped pattern is an emerging market phenomenon as well as confirmed by external public debt, but not domestic public debt. A key result is that in the presence of foreign ownership of sovereign bonds, sovereign default constitutes a net wealth gain for domestic consumers as the present value of saved future taxes outweighs their wealth loss on bond holding. Thus, in times of high default risk, consumers appear to anticipate that the government would rather dilute bondholders than repay sovereign debt using higher taxes.