Sovereign Bonds since Waterloo — better than you had thought

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%.

That is from Josefin Meyer, Carmen M. Reinhart, and Christoph Trebesch in a new NBER working paper.


Well, everybody knows that only those unaware of good investment opportunities buy US or UK bonds. You can explain this discrepancy in long run returns by the fact that everybody knows US bonds but not everybody knows how profitable Argentinian bonds can be if well managed. Their prices do not fully reflect this information because there are lots of naive traders.

Sẹo rỗ là di chứng của các tổn yêu thương nghiêm trọng
trên da, xuất hiện do: mụn, bệnh thủy đậu, dị ứng mỹ phẩm, tai nạn,…Khi đó, các tế bào sợi của da
bị đứt gãy hoặc thoái hóa, khiến cho cấu trúc da thay đổi, dẫn đến vùng da tại vết thương hình thành vết
lõm như chúng ta thấy được gọi là sẹo rỗ.

Dựa vào dạng hình, chúng ta có thể
phân chia sẹo rỗ/sẹo lõm thành 3 dạng:
Sẹo Ice Pick, Sẹo Boxcar, Sẹo Rolling.

Instead of a wealth tax, the US should sell trillions worth of bonds and then default. That's a faster way to pay off the debts.

Unless I am missing something they have already sold the trillions worth of bonds. That's what the debt is.

Isn't this largely attributable to the law of averages: returns measured over 200 years across 91 countries. And limiting the study to bonds traded in London and New York might suggest a selective set of bonds and countries of issuance. "[W]e show that full repudiation is rare; the median haircut is below 50%." Haircut? It's been awhile since I have heard or read that expression. Anyway, does this study provide support for the U.S. issuing bonds to finance the Green New Deal?

Not sure that this is novel? In W. Bernstein's excellent popular book "The Four Pillars" it is pointed out long-term bonds of the longest duration and stocks roughly have the same standard deviation (risk) and return.

One of the implicit (?) assumptions is that it is meaningful to lump the sovereign bonds of 1820 with those of 1930 with those of 1970 with those of 2016. Given that the markets, economies, laws (arguably), and enforcement mechanisms, as well as the risks are vastly different, I doubt the usefulness of this. Especially since London & NYC are selective. Let's see: Ottoman Empire, Austrian Empire, British Empire, East India Co., ... does anyone believe that any conclusion reached will allow prediction of future (Climate Change & India & China & Africa are major potential spoilers, nicht wahr?) yields?

yeet, got it
so the sociology dept. believes
they are leveraging -a median haircut below 50%
against a theology that says debt doesn't matter?

got it
this week the seminarians want to
leverage an ostensibly unlikely preposition (debt doesn't matter)
against a metaphor?

So Warren Mosler and the rest of MMT are right. Hyperinflation is caused by political instability not vice versa and default is rare. Inflation can be high and sustained for long periods, but the real return on sovereign debt remains sounds on average. All this despite the occasional 13% haircut rate.

got it
so in your world
"the occasional 13%haircut" metaphor
is equal to a
"a median haircut below 50%" metaphor

perhaps here is your problem?
"occasional 13percent haircut "and
"median haircut below 50%"
these are phrases invented to obfuscate risk!
they don't explain risk
especially in the context of the bold claim that debt(really big) doesn't matter (much)

im feeling generous
how about if we make a rule that says
you can't define a potential huge &difficult to measure risk
with a mixed metaphor
we call it Thiago Ribeiro's Law!

Comments for this post are closed