Sovereign Bonds Since Waterloo

79 Pages Posted: 21 Feb 2019

See all articles by Josefin Meyer

Josefin Meyer

Ludwig Maximilian University of Munich (LMU)

Carmen Reinhart

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics; Harvard University - Center for Business and Government; Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ; University of Maryland - School of Public Affairs; World Bank; Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); 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: 2019

Abstract

This paper studies external sovereign bonds as an asset class. We compile a new database of 220,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering 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 averaged 7% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of around 4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. The observed returns are hard to reconcile with canonical theoretical models and with 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 haircut is below 50%.

Keywords: sovereign debt, default, risk premiums, investor returns, interest rates, portfolio, yields, coupons, recovery

JEL Classification: E400, F300, F400, G100, N000

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 (2019). Available at SSRN: https://ssrn.com/abstract=3338913 or http://dx.doi.org/10.2139/ssrn.3338913

Josefin Meyer (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

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

Carmen Reinhart

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Harvard University - Center for Business and Government ( email )

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

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue NW
Washington, DC 20036
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, 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)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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
337
Abstract Views
1,932
rank
88,990
PlumX Metrics