The Role of CDS Market in the Price Discovery Process of the “PIIGS” Countries Sovereign Credit Risk During the Recent Decade of Monetary Easing

The aim of this paper is to analyze the long-lasting dynamic relationship between the credit default swap (CDS) premia and the government bond spreads (GBS), with regard to the sovereign credit risk. The practical focus is to evaluate whether the CDS market effectively is the leading or the lagging market in the credit risk price discovery process during the last decade of monetary easing. The analysis extends to all “sensitive” countries in the Eurozone, the so-called “PIIGS” countries (excluded Greece) for the interval 2007-2017. JEL classification numbers: G01, G12, G14, G20. Keywords: CDS spread, Government bond spread, Sovereign credit risk, Cointegration, Vector error correction model, Granger-causality.

Determinants of Russia’s Sovereign Risk

This paper presents an empirical analysis of the determinants of Russia’s sovereign risk. The spreads on sovereign Russian credit default swaps (CDS) were used as a measure of risk. Based on the accuracy of out-of-sample forecasts, the factors that influence Russian CDS were selected: the implied volatility of the rouble exchange rate, the size of foreign exchange reserves relative to GDP, and the average spread on other emerging market CDS as a proxy for global factors. In turn, the CDS of emerging market countries are determined by the volatility of their currencies, the slope of the US government bond curve, and also by the increments of the dollar index.

Virus will complicate Central Europe’s policy dilemmas

Significance Surging inflation across CE has coincided with a rapid worsening of current-account balances, particularly in Hungary, putting the region’s currencies under strain. It has exposed the vulnerability of CE government bond markets, with yields, particularly real yields, remaining at excessively low levels. Impacts The era of low bond yields and low currency volatility in CE may have run its course. A full-fledged CE currency crisis is unlikely: Poland, Hungary and the Czech Republic are still among the most resilient emerging markets. Hungary’s crucial elections in early 2022 will reduce the scope for fiscal tightening, making policy dilemmas more acute. EU concerns about the rule of law in Poland and Hungary threaten funds earmarked for both but have had little impact on market sentiment.

Bursts and Regularization in Financial Markets: Deterministic or Stochastic?

We analyze empirical finance data, such as the Financial Stress Index, a number of asset classes (swaps, equity and bonds), market (emerging vs. developed), issuer (corporate vs. government bond), maturity (short vs. long) data, asking whether the recently observed alternations between calm periods and financial turmoil can be modelled in a low-dimensional deterministic manner, or whether they demand for their description a stochastic model. We find that a deterministic model performs at least as well as one of the best stochastic models, but may provide additional insight into the essential mechanisms that drive financial markets.

On The Assessment of the V-Inverted Shape Pattern for Romanian Government Bond Yields Around Treasury Auctions

In this paper, we intend to provide some theoretical and practical insights on the interdependence between treasury auctions and market yields around auction time. Based on previous research, we investigated the presence of the auction cycle and the corresponding V-inversed pattern of yields in the case of the Romanian sovereign bond market.

An empirical analysis of long-term Brazilian interest rates

This paper empirically models the dynamics of Brazilian government bond (BGB) yields based on monthly macroeconomic data, in the context of the evolution of the key macroeconomic variables in Brazil. The results show that the current short-term interest rate has a decisive influence on the long-term interest rate on BGBs, after controlling for various key macroeconomic variables, such as inflation and industrial production. These findings support John Maynard Keynes’s claim that the central bank’s actions influence the long-term interest rate on government bonds mainly through the current short-term interest rate. These findings have important policy implications for Brazil. This paper relates the findings of the estimated models to ongoing debates in fiscal and monetary policies.

Economic Fluctuation, Local Government Bond Risk and Risk-Taking of City Commercial Banks

Countercyclical fiscal regulation can mitigate economic risk, but this is bound to increase the scale of local government debt during an economic downturn, and then spread risk to the banking sector, forming potential financial instability factors. We extracted the three most important variables in this process: economic fluctuation, local debt risk and bank risk-taking to build an econometric model and found that: (1) both economic fluctuations and local government bond risks have a significant impact on bank risk-taking, which is negatively correlated with local economic growth, while the increase of local government bond risks tends to increase bank risk-taking in the long run; (2) the impact of local government debt risk significantly increases the loans of city commercial banks flowing into the construction industry. Therefore, the impact of local government bond risk on city commercial banks is concentrated in the impact on their construction loans. This study has an important reference value for timely and moderate countercyclical regulation, preventing local debt risk from spreading to banks, constructing a sustainable local government−bank ecology, and promoting sustainable economic development.