This research paper focuses on the analysis of investor behavior in sovereign bonds, with the aim of assessing their ability to detect impending default risk. Using a dataset of external sovereign bonds spanning from 1820 to 1980, the paper performs a dynamic difference in difference regression. The paper finds that sovereign bond investors begin to react to early signs of default, with defaulting bonds beginning to be priced down 40 months before default. The prices reduce steadily relative to non-defaulting bonds until around 10 months before the default date. At around 10 months the drop in prices accelerates until the default date. Post-default, the prices continue to decrease, but at a decreasing rate, reflecting the uncertainty in the haircut.