Sovereign Bonds Since Waterloo

Abstract This article studies external sovereign bonds as an asset class. We compile a new database of 266,000 monthly prices foreign-currency government traded in London and New York between 1815 (the Battle Waterloo) 2016, covering up to 91 countries. Our main insight is that, equity markets, the returns on have been sufficiently high compensate for risk. Real ex post average more than 6% annually across two centuries, including default episodes, major wars, global crises. represents excess return 3%–4% above US or UK bonds, which comparable stocks outperforms corporate bonds. Central this finding are coupons offered The observed hard reconcile with canonical theoretical models degree credit risk market, measured by historical recovery rates. Based our archive 300 debt restructurings since 1815, we show that full repudiation rare; median creditor loss (haircut) below 50%.