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Sovereign Bond Prices, Haircuts and Maturity
Author:
Mr. Tamon Asonuma
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Dirk Niepeltnull

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Mr. Romain Ranciere
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 119
Language:
English
Publication Date:
22 May 2017
DOI:
https://doi.org/10.5089/9781484301098.001
ISBN:
9781484301098
ISSN:
1018-5941
Pages:
37
Keywords:
WP; coupon rate; Sovereign Debt; Default; Debt Restructuring; Bond Prices; Haircuts; Maturity; Default Probability; recovery rate; bond price differential; price difference; longer-term bond; term structure; bond maturity; Asset prices; Bonds; Securities; Debt default
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 119