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

Author/Editor:

Jochen R. Andritzky ; Julian Schumacher

Publication Date:

July 1, 2019

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:

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 well as 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

Series:

Working Paper No. 19/138

Subject:

English

Publication Date:

July 1, 2019

ISBN/ISSN:

9781498317375/1018-5941

Stock No:

WPIEA2019138

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

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