Discussion paper
DP12252 Sovereign Bond Prices, Haircuts and Maturity
Rejecting a common assumption in the sovereign debt literature, we document that cred-
itor 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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