Sovereign Bonds Since Waterloo

128 Pages Posted: 12 Feb 2019 Last revised: 23 Jan 2022

See all articles by Josefin Meyer

Josefin Meyer

Ludwig Maximilian University of Munich (LMU)

Carmen Reinhart

Harvard University - Center for Business and Government; Centre for Economic Policy Research (CEPR); World Bank; University of Maryland - School of Public Affairs; National Bureau of Economic Research (NBER); International Monetary Fund (IMF); Peterson Institute for International Economics; Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ; Harvard University - Harvard Kennedy School (HKS)

Christoph Trebesch

Kiel Institute for the World Economy; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: February 2019

Abstract

This paper studies external sovereign bonds as an asset class. We compile a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3-4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent.

Suggested Citation

Meyer, Josefin and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Trebesch, Christoph, Sovereign Bonds Since Waterloo (February 2019). NBER Working Paper No. w25543, Available at SSRN: https://ssrn.com/abstract=3332291

Josefin Meyer (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Carmen Reinhart

Centre for Economic Policy Research (CEPR)

London
United Kingdom

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

University of Maryland - School of Public Affairs ( email )

College Park, MD 20742-1815
United States
301-405-7006 (Phone)
301-403-8107 (Fax)

HOME PAGE: www.wam.umd.edu/~creinhar

Harvard University - Center for Business and Government ( email )

John F. Kennedy School of Government
79 JFK Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ( email )

79 JFK Street
Cambridge, MA 02138
United States
617-496-8643 (Phone)

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue NW
Washington, DC 20036
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4793 (Phone)
202-623-7271 (Fax)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Christoph Trebesch

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
341
PlumX Metrics