Sovereign Bond Prices, Haircuts and Maturity

Author/Editor:

Tamon Asonuma ; Dirk Niepelt ; Romain Ranciere

Publication Date:

May 22, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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.

Series:

Working Paper No. 17/119

English

Publication Date:

May 22, 2017

ISBN/ISSN:

9781484301098/1018-5941

Stock No:

WPIEA2017119

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

37

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