private. On average, they find a 9% nominal return, comparable to that of US Treasury bonds at that time (zero premia), but there is substantial time variation. Appendix B3.2 shows that we get very similar results in those subsamples of their dataset for which pricing data exist. Furthermore, in Appendix B4, we add evidence on the 1970s, 1980s, and early 1990s, partly based on secondary market price data for syndicated loans 1985-1993. The results confirm those in Klingen, Weder, and Zettelmeyer (2004): sovereign debt returns were very low in the late 1980s and very high in the early 1990s.

Following large-scale debt restructurings in the early 1990s under the Brady Plan, fixed income markets reemerged as a dominant source of credit to emerging markets. The recent literature mostly explores this post-1990 sovereign bond era with an approach closer in spirit to the one developed in this paper, typically using JP Morgan’s Emerging Markets Bond Index (EMBI) country series (e.g., Broner, Lorenzoni, and Schmukler 2013; Borri and Verdelhan 2015; Andritzky and Schumacher 2018).<sup>18</sup> The results highlight excess returns by country in the 3%-15% range, which is significantly higher than those reported by papers studying the pre-1990s and in line with our results.

A broad takeaway from this previous literature on bond returns is that, historically, emerging market debt delivered returns that were only slightly above the risk-free rate. This made it all the more puzzling why investors continue to flock to this asset class in their search for high yield. Compared with that body of research, we provide a more representative and encompassing picture of the external sovereign bond market. Our bigger sample gives less weight to individual defaulters (like Russia) or episodes that were particularly turbulent (like the Great Depression). We also disregard the (lower) returns of sub-sovereign bonds. Instead, we focus on external sovereign bonds and include all episodes for which price quotations exist, including spells with very high returns in the aftermath of wars and crises, as well as during the boom decades of the 1840s, 1860s, 1880s, 1940s, 1950s, 1990s, and the 2000s (many of these were not included in previous studies).

A necessary ingredient for the calculation of ex-post returns is to account for losses due to default or restructuring, which requires data on missed payments and recurring debt exchanges. The research on sovereign haircuts has been largely confined to the modern period (post-1970s), and this sample is dominated by defaults and haircuts on sovereign syndicated bank loans, plus about 20 recent restructurings of sovereign bonds. In pioneering work, Sturzenegger and Zettelmeyer (2006, 2008) compute investor losses in eight sovereign bond restructurings since 1998, finding haircuts in the range of 13%-73%. Using a similar approach, Cruces and Trebesch (2013), whose study encompasses 187 restructuring events of sovereign bonds and syndicated bank loans since 1978, calculate an average haircut of 38%. Moody’s (2012), Asonuma, Niepelt, and Ranciere (2017), and Fang, Schumacher, and Trebesch

> 18 Broner, Lorenzoni, and Schmukler (2013) use Bloomberg and JP Morgan EMBI data for eight countries between 1993 and 2003, covering two default spells. Borri and Verdelhan (2015) use EMBI aggregate indices for 41 emerging market countries over 1995-2011, including eight default events on sovereign bonds.

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