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.


Ranciere, R and T Asonuma (2017), ‘DP12252 Sovereign Bond Prices, Haircuts and Maturity‘, CEPR Discussion Paper No. 12252. CEPR Press, Paris & London. https://cepr.org/publications/dp12252