Long-Term Returns in Distressed Sovereign Bond Markets: How Did Investors Fare?

32 Pages Posted: 28 Jul 2019

See all articles by Jochen R. Andritzky

Jochen R. Andritzky

German Council of Economic Experts; International Monetary Fund (IMF)

Julian Schumacher

European Central Bank (ECB)

Date Written: July 2019


Sovereign debt restructurings are perceived as inflicting large losses to bondholders.However, many bonds feature high coupons and often exhibit strong post-crisis recoveries. To account for these aspects, we analyze the long-term returns of sovereign bonds during 32 crises since 1998, taking into account losses from bond exchanges as wellas profits before and after such events. We show that the average excess return over risk-free rates in crises with debt restructuring is not significantly lower than the return on bonds in crises without restructuring. Returns differ considerably depending on the investment strategy: Investors who sell during crises fare much worse than buy-and-hold investors or investors entering the market upon signs of distress.

Keywords: International bond markets, Collective action clauses, International capital markets, Sovereign debt restructuring, Bond issues, Debt crisis, public debt, sovereign risk, sovereign default, bond restructuring, reprofiling, excess return, Sharpe ratio, annualize

JEL Classification: H63, F34, G11, F16, E01, G12, E22

Suggested Citation

Andritzky, Jochen and Schumacher, Julian, Long-Term Returns in Distressed Sovereign Bond Markets: How Did Investors Fare? (July 2019). IMF Working Paper No. 19/138, Available at SSRN: https://ssrn.com/abstract=3427675

Jochen Andritzky (Contact Author)

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180

International Monetary Fund (IMF) ( email )

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

Julian Schumacher

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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