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Working paper

Bond Funds During the Sovereign Debt Crisis: the Argentinian Experience

Sokolov V., Hairutdinov A.
Using the unexpected outcome of Argentinian presidential primary elections in August 2019, which led to the country’s sovereign default, we investigate how the exposure of international bond funds to Argentinian sovereign bonds affected the discretionary sales of bonds by fund managers and flows by ultimate investors, conditional on fund liquidity and maturity structure. We find that more liquid and longer duration funds exhibit less sensitivity to pre-default funds’ exposure in terms of bond holding growth. Our second finding deals with asymmetric information among funds regarding the restructuring of post-default bonds and varying renegotiation costs. These costs are proxied by funds’ previous experience of holding the defaulted Argentinian debt interacted with fund’s distance to Buenos Aires. We confirm our hypothesis that the experienced North American funds with the lowest renegotiation costs retained more of their holdings of Argentinian bonds than all other groups