An Analysis of Credit Default Swap Spread and Bond Spread: Evidence from the European Debt Crisis

• Main Authors: Tzu Yu Chiu, 邱紫渝
• Other Authors: Y. W. Shyu
• Format: Others
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/58190809387330968222

碩士 === 長庚大學 === 工商管理學系 === 101 === This study examines the relative pricing of euro area sovereign CDS and the government bonds. The sample comprises monthly CDS and bond spreads of twelve euro area countries for the period from July 2008 to February 2012. First, we evaluate the lead-lag relationship between sovereign credit default swap (CDS) and bond markets during the European debt crisis period. Our first main finding is that price discovery takes place in the bond market in most of the sample countries. Second, this research compares the determinants of CDS and bond spreads test how the crisis has affected credit indicators. Then we investigate the basis between CDS spreads and bond spreads and which factors drive pricing differences between the two markets. In fact, the same variables are less successful in capturing changes in sovereign CDS spread. Also, the result shows that the global factors are more significant than local factors for bond credit spread.