Yields and default
Click to enlarge



Now that we managed to avoid default, let’s look at some historical examples of Sovereign default.

1. United States 2013
2. Germany 1938,1948
3. Japan 1942, 1946-1952
4. France 8 times between 1558-1788. Last one in 1812
5. Italy 1940. Almost daily speculation of another default since 2008
6. Spain 1809, 1820, 1931, 1834, 1851, 1867, 1872, 1882 and 1936-1939. Since 2008, Spanish yields spiked considerably and have been volatile on the back of another default
7. Austria 1938, 1940, 1945
8. United Kingdom 1822, 1834, 1888, 1932

While default is nothing new for many countries, this would have been for the United States.

Many economists have said that a US default would have catastrophic consequences for the global community. Borrowing costs would essentially sky rocket, global equity prices would be leveled, dollars status as a benchmark questioned and most importantly, a reversal into another deeper and darker world recession.

Glad we avoided that mess.



Ralph Dillon
Global Financial Data

Category: Credit, Fixed Income/Interest Rates, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Historical Global Yields & Defaults, 1800 – Present”

  1. rd says:

    France’s big one was 1788 and was part of the precipitating events for the French Revolution. I would be interested in knowing form any of the economic/financial historians perusing this blog why France’s 10-yr didn’t tank around WW I like the other major European combatants. For some reason France has been able to keep their 10 yr interest rate very low compared to everyone else since after they sorted out the French Revolution stuff.

  2. Petey Wheatstraw says:

    That default was even considered as a political weapon wielded against itself by the issuer of these fiat notes automatically calls into question the dollar’s status as a global reserve currency.

    When someone with the capacity to do so mentions they’re willing to hijack and take hostage the world economy, prudent people don’t just shrug it off: They keep a leery eye on the crazed MF making the threats.

    We have clearly demonstrated to the world that bat shit crazy trumps political/fiscal pragmatism in the good ol’ US of A. Congress — Specifically, the Republican House — should probably stick to solving more rational and practical problems, like bringing Teri Schiavo back from the dead.

    As for being a benchmark, any unit of value is a benchmark agains all others, and the entire system is in perpetual flux. If there were any real benchmark, it would provide a safe haven as a store or accounting of value.

    • rwboomtown says:

      “Fiscal pragmatism”? I don’t see that anywhere in Washington, nor do I see a hint of money being well spent. Crony capitalism is the name of the game and both parties are paying off their teams lavishly.

  3. mllange says:

    There is a precedent for default in the United States:

  4. gman says:

    Those UK “defaults” upon a little research are either impossible to find or the subject of intense debate whether the were actually defaults…

  5. pressit says:

    Ask the Dutch or French if they think the USA defaulted in 1971. President Nixon defaulted on the gold convertibility. Or do you mean that default only matters if we do it to ourselves? In other words, when federal retirement payments and social security payments are being paid in worthless dollars, that won’t be a default because we are still paying ourselves (though we will receive worthless dollars at that point)?

    • Petey Wheatstraw says:

      I was thinking the same thing about Nixon’s abandonment of the Bretton Woods system.

      If that wasn’t a default, what was it?

  6. jlivesey says:

    “United Kingdom 1822, 1834, 1888, 1932″

    Sorry, Barry, but people make this mistake all the time. The R&R paper is about defaults *and* restructuring. The UK has not defaulted on its debt in the period you quote. All that has ever happened is that debt issues have been consolidated. In the modern era, no-one has lost anything in UK debt.

    A good example is 1932. The 1917 5% War Loan was issued as a callable Bond. As I am sure you know, that means it is guaranteed to remain on the market for a fixed period, usually ten years, and then it can be called by the lender. The buyer of a callable Bond knows it is callable, since that is specified in the prospectus.

    Sure enough, by 1931 interest rates in the UK had fallen to 3.5%, so the UK Government called the Bond, giving the holder the choice of cash or a new Bond. They even offered a small premium on face value to get the deal done quickly. As it turned out 8% of holders took the cash, and 92% took the newly issued 3.5% perpetual War Loan, which in fact still trades.

    And if you ask why anyone would swap a 5% Bond for a 3.5% Bond, the answer is simple. If they took the cash, 3.5% is all they would get investing it, so cash or a new 3.5% Bond was a wash for investors.

    And just to anticipate obvious objections, this isn’t “really” a default, or “really” a confiscation in some poetic sense. At times of high interest rates – wartime is a good example – a lot debt gets issued in callable form. In fact, a lot of high yield corporate debt today is callable. Calling a callable Bond isn’t very different to what anyone does when they re-finance their mortgage after interest rates fall. You pay off a higher yield debt with the proceeds from raising a lower yield debt.

    So no, default isn’t “nothing new” for the UK. Default is something that hasn’t happened in the UK since the seventeenth Century.