Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316913 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11799
Publisher: 
CESifo GmbH, Munich
Abstract: 
Theory suggests that corporate and sovereign bonds are fundamentally different, also because sovereign debt has no bankruptcy mechanism and is hard to enforce. We show empirically that the two assets are more similar than you think, at least when it comes to high-yield bonds over the past 20 years. We use rich new data to compare high-yield US corporate ("junk") bonds to high-yield emerging market sovereign bonds 2002-2021. Investor experiences in these two asset classes were surprisingly aligned, with (i) similar average excess returns, (ii) similar average risk-return patterns (Sharpe ratios), (iii) similar default frequency, and (iv) comparable haircuts. A notable difference is that the average default duration is higher for sovereigns. Moreover, the two markets co-move differently with domestic and global factors. US "junk" bond yields are more closely linked to US market conditions such as US stock returns, US stock price volatility (VIX), or US monetary policy.
Subjects: 
sovereign debt and default
default risk
corporate bonds
corporate default
junk bonds
chapter 11
crisis resolution.
JEL: 
F30
G10
F40
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.