The War That Bond Markets Did not Perceive as Such The Prices of South African Bonds during the Second Anglo-Boer War: An Extreme Case of Resilience

Forthcoming in Warren Young, Arie Arnon, Karine Van Der Beek (Eds), Expectations: Theory and Applications from Historical Perspectives, Springer

25 Pages Posted: 27 Mar 2020

See all articles by Kim Oosterlinck

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB

Marie Van Gansbeke

affiliation not provided to SSRN

Date Written: March 3, 2020

Abstract

When a conflict breaks out, warring states’ bond prices generally experience sharp declines. As military defeat may prompt the winner to ask for reparations, bonds issued by the losing party are usually even more affected. By contrast, during the Second Anglo-Boer war (1899-1902) the prices of the bonds issued by the South African Republic never fell below 96% of par and this despite the fact that the public believed South African defeat could not be avoided. We attribute this observation to investors’ belief that a Britsih victory would lead to the assumption of the South African debt by the victor. Historical precedents and archival evidence show that this was by no means a foregone conclusion. Our analysis reveals the important role played by Rothschild, the underwriter. When the bond was first issued, Rothschild signalled that should a war break out the bond would be repaid. Once the war became reality Rothschild was instrumental in making sure Great Britain would take over the loan.

Keywords: sovereign debt, Rothschild, War, Default

JEL Classification: N23; N27, G15, F54

Suggested Citation

Oosterlinck, Kim and Van Gansbeke, Marie, The War That Bond Markets Did not Perceive as Such The Prices of South African Bonds during the Second Anglo-Boer War: An Extreme Case of Resilience (March 3, 2020). Forthcoming in Warren Young, Arie Arnon, Karine Van Der Beek (Eds), Expectations: Theory and Applications from Historical Perspectives, Springer. Available at SSRN: https://ssrn.com/abstract=3548109 or http://dx.doi.org/10.2139/ssrn.3548109

Kim Oosterlinck (Contact Author)

Université Libre de Bruxelles - SBS-EM, CEB ( email )

50 Avenue Roosevelt, CP114/03
Brussels 1050
Belgium

Marie Van Gansbeke

affiliation not provided to SSRN

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