200 Years of Sovereign Haircuts and Bond R eturns (with Josefin Meyer and Carmen Reinhart)
Abstra ct:
How do creditors fare in sovereign debt markets? In particular, when do they suffer losses on their bond holdings? These question have regained cr ucial relevance for investors and policymakers, in particular in advanced e conomies. In this paper, we take a long-run perspective and compute investo r returns and investor losses (haircuts) in sovereign debt markets since 18 15 and worldwide. To our knowledge, this is the most comprehensive dataset on sovereign bonds and debt crises ever compiled. The results provide uniqu e new insights on the asset class of sovereign debt and put recent crisis e xperiences in emerging markets and in the Eurozone into historical perspect ive. The average long-run real return on emerging market sovereign bonds is about 6-7% over the past 200 years. This is significantly higher than the return on advanced country domestic sovereign bonds and resembles the retur n and volatility profile of domestic equities. With regard to creditor loss es (haircuts) we find that their size and variation is strikingly similar o ver time, despite changes in institutions, financial markets and economic f undamentals since the 19th century. Cases of outright debt repudiation and bond price crashes (haircuts or price drops of more than 90 percent) are su rprisingly rare. We also find that creditor losses are often quickly recove red.
DTSTAMP:20260405T212912Z DTSTART:20171207T170000Z DTEND:20171207T183000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR