The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Sovereign debt restructurings are perceived as inflicting large losses to bondholders.
However, many bonds feature high coupons and often exhibit strong post-crisis
recoveries. To account for these aspects, we analyze the long-term returns of sovereign
bonds during 32 crises since 1998, taking into account losses from bond exchanges as well
as profits before and after such events. We show that the average excess return over risk-free
rates in crises with debt restructuring is not significantly lower than the return on
bonds in crises without restructuring. Returns differ considerably depending on the
investment strategy: Investors who sell during crises fare much worse than buy-and-hold
investors or investors entering the market upon signs of distress