Arbeitspapier

Sovereign Bonds since Waterloo

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%.

Language: Englisch

Bibliographic citation: Series: Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" ; No. 12

Classification: Wirtschaft
International Finance: General
International Lending and Debt Problems
Asset Pricing; Trading Volume; Bond Interest Rates
International Financial Markets
Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative
Economic History: Financial Markets and Institutions: General, International, or Comparative

Subject: sovereign debt
default
risk premiums
investor returns
interest rates
portfolio
yields
coupons
recovery

Event: Geistige Schöpfung

(who): Meyer, Josefin
Reinhart, Carmen M.
Trebesch, Christoph

Event: Veröffentlichung

(who): Humboldt University Berlin

(where): Berlin

(when): 2019

DOI: doi:10.18452/20586

Handle: http://hdl.handle.net/10419/223193

URN: urn:nbn:de:kobv:11-110-18452/21332-1

Last update: 10.03.2025, 11:44 AM CET

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Object type

Arbeitspapier

Associated

Meyer, Josefin
Reinhart, Carmen M.
Trebesch, Christoph
Humboldt University Berlin

Time of origin

2019

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Arbeitspapier