The Impacts of Centrally Clearing Sovereign Credit Default Swaps on the Nature of Sovereign Credit Risk

2017 ◽  
Author(s):  
Josephine Molleyres
Keyword(s):  
Credit Risk ◽  
Credit Default Swaps ◽  
Sovereign Credit ◽  
Credit Default ◽  
Sovereign Credit Risk

The Relative Role of Sovereign CDS and Bond Markets in Efficiently Pricing Emerging Market Sovereign Credit Risk

2020 ◽  
Vol 19 (3) ◽  
pp. 296-325
Author(s):  
Zubair Ali Raja ◽  
William J. Procasky ◽  
Renee Oyotode-Adebile
Keyword(s):  
Credit Risk ◽  
Price Discovery ◽  
Emerging Market ◽  
Jel Classification ◽  
Bond Markets ◽  
Relative Role ◽  
Data Set ◽  
Sovereign Credit ◽  
Credit Default ◽  
Sovereign Credit Risk

Extant literature reports mixed findings on the relative efficiency of credit default swaps (CDS) and bond markets in pricing emerging market sovereign credit risk. Using a more comprehensive data set than analyzed earlier, we reexamine this issue and find that CDS dominate bonds in the price discovery of this risk, an advantage we attribute to the greater relative liquidity of that market. One exception is during the financial crisis, suggesting that when panic hits, sovereign markets price credit risk differently. However, even then, the CDS market has a greater impact on price discovery than the bond market, indicating greater overall efficiency. JEL Classification: G11, G12, G13, G14, G23

scholarly journals Sovereign credit default swap spreads as tools of ensuring the international financial security of the Eurozone countries

2018 ◽  
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Credit Default Swap ◽  
Credit Default Swaps ◽  
Financial Security ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Credit Default ◽  
World Economic ◽  
Default Swap

The article investigates the state of the Eurozone countries’ financial security in the context of the world economic environment globalization. For the purpose of this, financial security is considered in terms of institutional, instrumental, and interdisciplinary dimensions. The subject of research is the tools of the Eurozone countries’ financial security ensuring. The goal is to research the dependence of the financial activity of the euro area countries on the results of credit rating assessments by rating agencies using the credit default swap instrument in the context of the Eurozone countries’ financial security ensuring.The objective is the process of the Eurozone countries’ financial security ensuring in the context of the world economic environment globalization. General scientific methods are used, such as system analysis – to determine the peculiarities of the financial security ensuring,regression analysis - to determine the relationship between the spreads of sovereign credit default swaps and the eurozone credit rating class. The following results are obtained: on the basis of the regression analysis of the spreads of sovereign credit default swaps and the eurozone credit rating classindicators the influence of sovereign credit risk figure on investment attractiveness of the Eurozone countries is determined; the approaches of the credit default swaps usage in the context of the researching of the credit rating impact on the investment attractiveness of the sovereigns are systematized; examination of dependence between credit ratings and sovereign credit default swap spreads is applied as the main research tool. Conclusions: for the sake of the Eurozone countries’ financial security enhancement, the authors offer replacement of the credit ratings of leading credit rating agencies with alternative credit risk indicators : market assessments of credit risk, instruments for internal credit risk assessment and third party valuation, as well as the ways of strengthening the Eurozone’s financial security through the establishment of permanent threat monitoring system and estimation of their quantity and quality variables are suggested in the article.

scholarly journals The COVID-19 pandemic and sovereign credit risk

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wei-Fong Pan ◽  
Xinjie Wang ◽  
Ge Wu ◽  
Weike Xu
Keyword(s):  
Credit Risk ◽  
Financial Stability ◽  
Developing Economies ◽  
Credit Default Swap ◽  
Content Type ◽  
Sovereign Credit ◽  
Panel Regressions ◽  
Credit Default ◽  
Sovereign Credit Risk ◽  
The Impact

PurposeThe purpose of this study is to examine the effects of the coronavirus disease 2019 (COVID-19) pandemic on sovereign credit default swap (CDS) spreads using a large sample of countries.Design/methodology/approachIn this paper, the authors use a wide set of the sovereign CDS data of 78 countries. To measure the magnitude of the COVID-19 pandemic, the authors use the daily change of confirmed cases collected from Our World in Data. They use panel regressions to estimate the impact of the COVID-19 pandemic on sovereign credit risk.FindingsThe authors show how sovereign CDS spreads have widened significantly in response to the COVID-19 pandemic. Based on the most conservative estimate, a 1% increase in COVID-19 infections leads to a 0.17% increase in sovereign CDS spreads. Furthermore, this effect is stronger for developing countries and countries with worse healthcare systems. Government policies partially offset the impact of the COVID-19 pandemic, although these same policies also lead to widening sovereign CDS spreads. Sovereign CDS spreads narrow dramatically several months after the outbreak of the COVID-19 pandemic. Overall, the results suggest that the ongoing COVID-19 pandemic has been a massive shock to the global financial stability.Originality/valueThis paper provides new evidence that COVID-19 widens sovereign CDS spreads. The authors further show that this widening effect is felt most strongly in developing economies.

scholarly journals An Empirical Analysis of Sovereign Credit Risk Co-movement between Japan and ASEAN Countries

2016 ◽  
Vol 8 (4(J)) ◽  
pp. 6-16 ◽  
Author(s):  
Boonlert Jitmaneeroj ◽  
John Ogwang
Keyword(s):  
Credit Risk ◽  
Sovereign Debt ◽  
Credit Default Swap ◽  
Negative Externalities ◽  
Sovereign Credit ◽  
Credit Risks ◽  
Credit Default ◽  
Sovereign Credit Risk ◽  
Asean Countries ◽  
High Possibility

Japan is the most developed economy in Asia. However, it has been on record for being the most heavily indebted country among OECD countries. In many circumstances, the high sovereign debt level indicates a high possibility of sovereign credit risks associated with investment in government bond. The high sovereign credit risk may also generate a number of negative externalities for private businesses operating in the host country. This paper investigates whether sovereign credit risk of Japan as measured by its sovereign credit default swap (SCDS) can better predict and commove with sovereign credit risk of selected ASEAN countries. The bivariate VAR model was used to test for Granger Causalities among these countries SCDS premiums and correlation analysis to investigate co-movements between SCDS of these countries. The results indicate that Japan’s sovereign credit risks do not co-move with those of ASEAN countries, Furthermore, Sovereign credit risks of ASEAN countries tend to lead those of Japan as evidenced by unidirectional causalities from these countries to Japan. The overall suggestion is that sovereign credit risk of Japan is not likely to influence those of ASEAN. The paper concludes with some implications for businesses.

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