Gradual Repricing of Sovereign Risk during the American Revolutionary War

As the 250th anniversary of the United States invites renewed reflection on the American Revolutionary War, this paper examines how financial markets incorporated geopolitical information during one of the most consequential conflicts of the eighteenth century. Using monthly data on British Consol yields from 1770 to 1788, the analysis evaluates whether sovereign bond markets responded to major military and political developments through discrete, event-driven adjustments or through a process of gradual belief updating. In contrast to the standard event-study paradigm, the evidence provides consistent support for a model of cumulative repricing. A trend-interaction specification identifies a statistically significant increase in the trajectory of yields following the Battle of Bunker Hill, indicating the onset of sustained sovereign risk repricing, while a subsequent moderation after Yorktown reflects the resolution of uncertainty rather than an immediate level adjustment. Event-window regressions provide limited evidence of robust short-run responses to major military events but identify a significant effect associated with the Treaty of Paris. Additional tests show that yield dynamics are strongest when allowing for delayed responses of several months, consistent with gradual information diffusion in an environment characterized by slow and uncertain communication. These findings suggest that sovereign bond markets in the eighteenth century incorporated geopolitical information through progressive expectation updating rather than instantaneous reaction. More broadly, the results provide new evidence on how early financial markets processed uncertainty during periods of conflict and highlight the role of information frictions and belief formation in shaping sovereign borrowing costs.