Sovereign Bond Prices, Haircuts and Maturity

By Tamon Asonuma, Dirk Niepelt, Romain Ranciere

May 22, 2017

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Format: Chicago

Tamon Asonuma, Dirk Niepelt, and Romain Ranciere. Sovereign Bond Prices, Haircuts and Maturity, (USA: International Monetary Fund, 2017) accessed December 21, 2024

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.

Summary

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.

Subject: Asset and liability management, Asset prices, Bonds, Debt default, Debt restructuring, External debt, Financial institutions, Prices, Securities

Keywords: Asset prices, Bond maturity, Bond price differential, Bond Prices, Bonds, Coupon rate, Debt default, Debt Restructuring, Default, Default Probability, Haircuts, Longer-term bond, Maturity, Price difference, Recovery rate, Securities, Sovereign Debt, Term structure, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/119
Stock No:

WPIEA2017119
ISBN:

9781484301098
ISSN:

1018-5941

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