Sovereign Bond Prices, Haircuts and Maturity

Niepelt, Dirk (September 2017). Sovereign Bond Prices, Haircuts and Maturity (Discussion Papers 17-03). Bern: Department of Economics

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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.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Niepelt, Dirk

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

28 Dec 2020 08:40

Last Modified:

28 Dec 2020 08:40

JEL Classification:

F34, F41, H63

BORIS DOI:

10.48350/145842

URI:

https://boris.unibe.ch/id/eprint/145842

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