Credit Ratings and Credit Default Swaps During the European Sovereign Debt Crisis

The credit default swap (CDS) remains an important class of derivatives contract despite the declining activity in the single-name corporate market. I provide a quick introduction to the contracts, the pricing formula used to interpret the market premiums, the development in trading volumes, and some key insights that are important for understanding its role in markets. I then take a closer look at the CDS-bond basis and the role of trading and regulatory frictions. Finally, the European sovereign debt crisis brought back in focus the notion of a quanto spread, which I explain.

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What Factors Influence European Corporate Bond Spread?

International Journal of Business and Management ◽

10.5539/ijbm.v15n4p87 ◽

2020 ◽

Vol 15 (4) ◽

pp. 87

Author(s):

Maria Cristina Arcuri ◽

Gino Gandolfi ◽

Manou Monteux ◽

Giovanni Verga

Keyword(s):

Sovereign Debt ◽

Debt Crisis ◽

Credit Default Swap ◽

Corporate Bond ◽

Sovereign Debt Crisis ◽

Policy Makers ◽

Sovereign Bonds ◽

European Sovereign Debt Crisis ◽

Credit Default ◽

Main Determinants

This paper examines the main determinants of corporate euro-bond spread. We analyse a large sample of corporate euro-country bonds over the period May 2005 -January 2012, considering three sub-periods: May 2005- July 2007 (pre-crisis period), August 2007-April 2010 (worldwide financial crisis) and May 2010-January 2012 (European sovereign debt crisis). We show that both liquidity risk and risk related to the country of the issuing firms affect corporate bond spread. We also find that the market yield of corporate bonds issued in the main European countries is, other things being equal, strongly influenced by the risk of the corresponding sovereign bonds and Credit Default Swap (CDS). Finally, we compare the yields of bonds issued by banks with those of bonds issued by firms from other sectors and find that the spread, other things being equal, is significantly higher for banks. These findings may have operating implications for market activity, regulators and policy makers.

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The Impact of the Introduction of Uniform European Collective Action Clauses on European Government Bonds as a Regulatory Result of the European Sovereign Debt Crisis

Journal of Risk and Financial Management ◽

10.3390/jrfm14010001 ◽

2020 ◽

Vol 14 (1) ◽

pp. 1

Author(s):

Nicoletta Layher ◽

Eyden Samunderu

Keyword(s):

European Union ◽

Sovereign Debt ◽

Debt Crisis ◽

Sovereign Debt Crisis ◽

The European Union ◽

Bond Yields ◽

Member States ◽

Sovereign Bond ◽

European Sovereign Debt Crisis ◽

Collective Action Clauses

This paper conducts an empirical study on the inclusion of uniform European Collective Action Clauses (CACs) in sovereign bond contracts issued from member states of the European Union, introduced as a regulatory result of the European sovereign debt crisis. The study focuses on the reaction of sovereign bond yields from European Union member states with the inclusion of the new regulation in the European Union. A two-stage least squares regression analysis is adopted in order to determine the extent of impact effects of CACs on member states sovereign bond yields. Evidence is found that CACs in the European Union are priced on financial markets and that sovereign bond yields do respond to the inclusion of uniform CACs in the European Union.

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