Sovereign Bond Prices, Haircuts and Maturity
CEPR Discussion Paper 12252
45 Pages Posted: 11 Sep 2017
There are 5 versions of this paper
Sovereign Bond Prices, Haircuts and Maturity
Sovereign Bond Prices, Haircuts and Maturity
Sovereign Bond Prices, Haircuts and Maturity
Sovereign Bond Prices, Haircuts and Maturity
Sovereign Bond Prices, Haircuts and Maturity
Date Written: August 29, 2017
Abstract
Rejecting a common assumption in the sovereign debt literature, we document that creditor losses ("haircuts") during sovereign restructuring episodes are asymmetric across debt instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt restructurings with private creditors in 1999-2015 and find that haircuts on shorter-term debt are larger than those on debt of longer maturity. In a standard asset pricing model, we show that increasing short-run default risk in the run-up to a restructuring episode can explain the stylized fact. The data confirms the predicted relation between perceived default risk, bond prices, and haircuts by maturity.
Keywords: Sovereign Debt; Sovereign Default; Debt Restructuring; Bond Prices; Haircuts; Maturity; Default Probability
JEL Classification: F34; F41; H63
Suggested Citation: Suggested Citation