Title: The behaviour of sovereign CDS and government bond in the Euro zone crisis
Author: Takayasu Ito
Address: School of Commerce, Meiji University, Chiyoda-ku, Tokyo 101-8301, Japan
Abstract: Sovereign CDS and government bond markets are integrated only in the Netherlands and not in Austria, Belgium, Finland, France, Germany, Greece, Italy, Ireland, Portugal, or Spain. Even though the CDS and government bond markets are separated, mutual influences between them are found in Greece, Italy, Ireland and Portugal with a one-way influence from the government bond market to the CDS market in Spain. This means that the CDS market functions as insurance in Spain but not elsewhere. The intensified sovereign crisis delivered a shock to the CDS and government bond markets, resulting in the loss of market integration and the price discovery function. No evidence is found that the CDS market intensified the degree of the crisis because a unilateral influence from the CDS market to the government bond market is not observed in any of the countries studied.
Keywords: credit default swaps; CDS; government bonds; Eurozone crsis; sovereign debt crisis; market integration; price discovery function.
Int. J. of Monetary Economics and Finance, 2016 Vol.9, No.2, pp.102 - 114
Available online: 10 May 2016