Sovereign Debt Guarantees and Default: Lessons from the UK and Ireland, 1920-1938
31 Pages Posted: 18 Mar 2020
Date Written: August 2016
We study the daily yields on Irish land bonds listed on the Dublin Stock Exchange during the years 1920–1938. We exploit Irish events during the period and structural differences in land bonds to tease out a measure of investors׳ credibility in a UK sovereign guarantee. Using Ireland׳s default on intergovernmental payments in 1932, we find a premium of about 43 basis points associated with uncertainty about the UK government guarantee. We discuss the economic and political forces behind the Irish and UK governments׳ decisions pertaining to the default. Our finding has implications for modern-day proposals to issue jointly-guaranteed sovereign debt.
Keywords: Irish land bonds, Dublin Stock Exchange, Sovereign default, Debt guarantees
JEL Classification: N23, N24, G15
Suggested Citation: Suggested Citation