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Sovereign Bond Prices, Haircuts and Maturity

Romain Ranciere, Tamon Asonuma () and Dirk Niepelt ()

No 2017/119, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; coupon rate; Sovereign Debt; Default; Debt Restructuring; Bond Prices; Haircuts; Maturity; Default Probability; recovery rate; bond price differential; price difference; longer-term bond; term structure; bond maturity; Asset prices; Bonds; Securities; Debt default (search for similar items in EconPapers)
Pages: 37
Date: 2017-05-22
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