Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223193
Authors: 
Meyer, Josefin
Reinhart, Carmen M.
Trebesch, Christoph
Year of Publication: 
2019
Series/Report no.: 
Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" No. 12
Abstract: 
This paper studies external sovereign bonds as an asset class. We compile a new database of 220,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering 91 countries. Our 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 averaged 7% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of around 4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. The observed returns are hard to reconcile with canonical theoretical models and with the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median haircut is below 50%.
Subjects: 
sovereign debt
default
risk premiums
investor returns
interest rates
portfolio
yields
coupons
recovery
JEL: 
F30
F34
G12
G15
N10
N20
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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