Sovereign Bond Prices, Haircuts and Maturity

43 Pages Posted: 2 Oct 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

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Date Written: September 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.

Suggested Citation

Asonuma, Tamon and Niepelt, Dirk and Rancière, Romain G., Sovereign Bond Prices, Haircuts and Maturity (September 2017). NBER Working Paper No. w23864. Available at SSRN: https://ssrn.com/abstract=3046378

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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