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

By Jochen R. Andritzky, Julian Schumacher

July 1, 2019

Preview Citation

Format: Chicago

Jochen R. Andritzky, and Julian Schumacher. Long-Term Returns in Distressed Sovereign Bond Markets: How Did Investors Fare?, (USA: International Monetary Fund, 2019) accessed February 15, 2025

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

Subject: Asset and liability management, Bonds, Crisis resolution, Debt restructuring, Financial crises, Financial institutions, Sovereign bonds

Keywords: Bond investor, Bond restructuring, Bonds, Buy-and-hold investor, Crisis episode, Crisis resolution, Debt crisis, Debt restructuring, Distress investor, Excess return, Global, Investment strategy, Investor type, Longer-term return, Long-term return, Market value, Net present value, Period return, Public debt, Return index, Returns in sovereign bond bond market, Sovereign bonds, Sovereign default, Sovereign risk, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/138
Stock No:

WPIEA2019138
ISBN:

9781498317375
ISSN:

1018-5941

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