Sovereign Bond Prices, Haircuts and Maturity
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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. 2017/119
Subject:
Asset and liability management Asset prices Bonds Debt default Debt restructuring External debt Financial institutions Prices Securities
English
Publication Date:
May 22, 2017
ISBN/ISSN:
9781484301098/1018-5941
Stock No:
WPIEA2017119
Pages:
37
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