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Sovereign Bond Prices, Haircuts and Maturity

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  • Asonuma, Tamon
  • Niepelt, Dirk
  • Ranci�re, Romain

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.

Suggested Citation

  • Asonuma, Tamon & Niepelt, Dirk & Ranci�re, Romain, 2017. "Sovereign Bond Prices, Haircuts and Maturity," CEPR Discussion Papers 12252, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12252
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    References listed on IDEAS

    as
    1. Fernández, Raquel & Martin, Alberto, 2014. "The Long and the Short of It: Sovereign Debt Crises and Debt Maturity," CEPR Discussion Papers 10322, C.E.P.R. Discussion Papers.
    2. Sturzenegger, Federico & Zettelmeyer, Jeromin, 2008. "Haircuts: Estimating investor losses in sovereign debt restructurings, 1998-2005," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 780-805, September.
    3. Tamon Asonuma & Christoph Trebesch, 2016. "Sovereign Debt Restructurings: Preemptive Or Post-Default," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 175-214, February.
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    Cited by:

    1. Bai, Yan & Kim, Seon Tae & Mihalache, Gabriel, 2017. "The payment schedule of sovereign debt," Economics Letters, Elsevier, vol. 161(C), pages 19-23.
    2. Gabriel Mihalache, 2017. "Sovereign Default Resolution Through Maturity Extension," Department of Economics Working Papers 17-08, Stony Brook University, Department of Economics.
    3. repec:sgm:jbfeuw:v:2:y:2017:i:8:p:5-27 is not listed on IDEAS

    More about this item

    Keywords

    Bond Pricing; debt restructuring; Sovereign debt;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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