Bloodshed or Reforms? The Determinants of Sovereign Bond Spreads in 1870-1913 and Today

Drawing on a newly-collected data set on bond yields, macroeconomic variables, and news of various categories for a panel of emerging markets, we provide the first comparative analysis of the determinants of sovereign bond spreads in the first era of financial globalization and bond finance (1870-1913) and today (1994-2002). We find that news about wars or episodes of politically-motivated violence are a significant and robust determinant of spreads; fiscal variables also play a role; in contrast, news about institutional reforms seldom have a rapid and significant impact. There are also important differences between the two eras: country-specific fundamentals account for a greater share of variation in spreads during the pre-WWI period than today.