Sovereign Bond Prices, Haircuts and Maturity
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Description
Rejecting a common assumption in the sovereign debt literature, we document that creditor
losses (“haircuts”) during sovereign restructuring episodes are asymmetric across debt
instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt
restructurings with private creditors in 1999–2015 and find that haircuts on shorter-term debt
are larger than those on debt of longer maturity. In a standard asset pricing model, we show
that increasing short-run default risk in the run-up to a restructuring episode can explain the
stylized fact. The data confirms the predicted relation between perceived default risk, bond
prices, and haircuts by maturity.
losses (“haircuts”) during sovereign restructuring episodes are asymmetric across debt
instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt
restructurings with private creditors in 1999–2015 and find that haircuts on shorter-term debt
are larger than those on debt of longer maturity. In a standard asset pricing model, we show
that increasing short-run default risk in the run-up to a restructuring episode can explain the
stylized fact. The data confirms the predicted relation between perceived default risk, bond
prices, and haircuts by maturity.
Date of Publication
2023-01
Publication Type
Article
Language(s)
en
Contributor(s)
Asonuma, Tamon | |
Ranciere, Romain |
Additional Credits
Series
Journal of international economics
Publisher
Elsevier
ISSN
0022-1996
Access(Rights)
restricted