Sovereign Bond Prices, Haircuts and Maturity

CEPR Discussion Paper 12252

45 Pages Posted: 11 Sep 2017

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund Research Department

Dirk Niepelt

University of Bern - Department of Economics

Romain G. Rancière

University of Southern California

Multiple version iconThere are 5 versions of this paper

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

Asonuma, Tamon and Niepelt, Dirk and Rancière, Romain G., Sovereign Bond Prices, Haircuts and Maturity (August 29, 2017). CEPR Discussion Paper 12252 . Available at SSRN: https://ssrn.com/abstract=3034473 or http://dx.doi.org/10.2139/ssrn.3034473

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 G. Rancière

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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