Are Government Bonds Safe in Times of War and Pandemic?

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan

No 34820, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze real returns on U.S. and U.K. government debt during major wars and the COVID-19 pandemic over the past three centuries. Wars are associated with sharply negative real returns on outstanding government debt, with returns falling far below economic growth, in contrast to peacetime periods when returns exceed growth. Elevated surprise inflation and financial repression account for a cumulative 31% wedge between returns and growth over four years of war, implying that bondholders bear a substantial share of wartime fiscal costs. During wartime, government bonds also systematically underperform risky assets.

JEL-codes: E43 E58 E6 E63 (search for similar items in EconPapers)
Date: 2026-02
Note: AP EFG ME
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