Sovereign Bond Prices, Haircuts and Maturity

38 Pages Posted: 2 Jun 2017

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund Research Department

Dirk Niepelt

University of Bern - Department of Economics

Romain Ranciere

International Monetary Fund (IMF)

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Date Written: May 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; Default; Debt Restructuring; Bond Prices; Haircuts; Maturity; Default Probability, Sovereign Debt, Default, Debt Restructuring, Bond Prices, Haircuts, Maturity, Default Probability, International Lending and Debt Problems, Open Economy Macroeconomics

JEL Classification: F34, F41, H63

Suggested Citation

Asonuma, Tamon and Niepelt, Dirk and Ranciere, Romain, Sovereign Bond Prices, Haircuts and Maturity (May 2017). IMF Working Paper No. 17/119. Available at SSRN: https://ssrn.com/abstract=2978680

Tamon Asonuma (Contact Author)

International Monetary Fund Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Dirk Niepelt

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Romain Ranciere

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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