This paper tries to identify the risks embodied in foreign-currency denominated sovereign bond spreads. It adopts an instrumental variables method , which attributes the explanatory power of fundamentals in a spread equation to their predictive power for observed risk realizations. Using historical data from developing countries, I find that it is possible to describe bond spreads by probabilities consistent with realizations: the reduced form explanatory power of fundamentals can be attributed to their influence on default and illiquidity predictions. There is, however, strong evidence that during currency crises, bond spreads increase more than do risk probabilities.