Sovereign Bonds since Waterloo

This paper studies external sovereign bonds as an asset class. It compiles a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91...

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Main Authors:	Meyer, Josefin, Reinhart, Carmen M., Trebesch, Christoph
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2022
Subjects:	SOVEREIGN BOND EMERGING MARKET BOND HIGHLY-INDEBTED POOR COUNTRIES DEBT SOVEREIGN DEBT EMERGING MARKET ECONOMIES DEBT MARKET
Online Access:	http://documents.worldbank.org/curated/undefined/243451642707009657/Sovereign-Bonds-since-Waterloo http://hdl.handle.net/10986/36877

id	okr-10986-36877
recordtype	oai_dc
spelling	okr-10986-368772022-01-28T05:10:35Z Sovereign Bonds since Waterloo Meyer, Josefin Reinhart, Carmen M. Trebesch, Christoph SOVEREIGN BOND EMERGING MARKET BOND HIGHLY-INDEBTED POOR COUNTRIES DEBT SOVEREIGN DEBT EMERGING MARKET ECONOMIES DEBT MARKET This paper studies external sovereign bonds as an asset class. It compiles a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. The main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3–4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on an archive of more than 300 sovereign debt restructurings since 1815, the authors show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent. 2022-01-27T13:34:27Z 2022-01-27T13:34:27Z 2022-01 Working Paper http://documents.worldbank.org/curated/undefined/243451642707009657/Sovereign-Bonds-since-Waterloo http://hdl.handle.net/10986/36877 English Policy Research Working Paper;No. 9906 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	SOVEREIGN BOND EMERGING MARKET BOND HIGHLY-INDEBTED POOR COUNTRIES DEBT SOVEREIGN DEBT EMERGING MARKET ECONOMIES DEBT MARKET
spellingShingle	SOVEREIGN BOND EMERGING MARKET BOND HIGHLY-INDEBTED POOR COUNTRIES DEBT SOVEREIGN DEBT EMERGING MARKET ECONOMIES DEBT MARKET Meyer, Josefin Reinhart, Carmen M. Trebesch, Christoph Sovereign Bonds since Waterloo
relation	Policy Research Working Paper;No. 9906
description	This paper studies external sovereign bonds as an asset class. It compiles a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. The main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3–4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on an archive of more than 300 sovereign debt restructurings since 1815, the authors show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent.
format	Working Paper
author	Meyer, Josefin Reinhart, Carmen M. Trebesch, Christoph
author_facet	Meyer, Josefin Reinhart, Carmen M. Trebesch, Christoph
author_sort	Meyer, Josefin
title	Sovereign Bonds since Waterloo
title_short	Sovereign Bonds since Waterloo
title_full	Sovereign Bonds since Waterloo
title_fullStr	Sovereign Bonds since Waterloo
title_full_unstemmed	Sovereign Bonds since Waterloo
title_sort	sovereign bonds since waterloo
publisher	World Bank, Washington, DC
publishDate	2022
url	http://documents.worldbank.org/curated/undefined/243451642707009657/Sovereign-Bonds-since-Waterloo http://hdl.handle.net/10986/36877
_version_	1764486080341475328

Sovereign Bonds since Waterloo

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