Sovereign credit ratings, the macroeconomy and credit default swap spreads

Yang Liu, Bruce Morley

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Abstract

The aim of this study is to determine the main factors affecting sovereign credit default swap (CDS) spreads, with particular emphasis on the relationship between the credit rating scores and the CDS spreads. Other macroeconomic affects are also included in the estimation which uses panel data from the main EU countries, USA and Japan. The results indicate there is little evidence to show any relationship between the credit ratings and the sovereign CDS spreads, and the main drivers of sovereign CDS spreads are macroeconomic fundamentals which reflect the ‘health’ of the economy.
Original languageEnglish
Pages (from-to)335-348
JournalBrussels Economic Review
Volume56
Issue number3/4
Publication statusPublished - 2013

Keywords

  • Sovereign credit default swap spread; macroeconomy; credit rating; risk.

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