Wars, threats, and the sovereign bond market

Jonathan-Julian Federle, Robin Greenwood, Josefin Meyer, Carmen M. Reinhart and Christoph Trebesch

No 2323, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: We study how wars and military threats affect financial markets. Leveraging more than 300,000 monthly price observations since 1822, we create an external currency bond index for more than 90 countries - the EXBI. Using the EXBI, we document large effects of wars on returns and borrowing costs. In a global external bond portfolio, a one-standard-deviation war shock lowers returns by five percentage points. At the country level, wars at home generate sharp losses and increase default risk. Military threats depress bond prices in threatened states, but not in threatening ones, highlighting their role as a channel for eoeconomic coercion.

Keywords: sovereign bond returns; war risk; geopolitical risk; militarized disputes; sovereign default; global financial history; conflict and finance; international capital markets (search for similar items in EconPapers)
JEL-codes: E44 F34 G15 H56 N20 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:341991

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