Swiss Journal of Economics and Statistics

, Volume 147, Issue 3, pp 275–302 | Cite as

Did the CDS market push up risk premia for sovereign credit?

  • Sergio Andenmatten
  • Felix Brill
Open Access


We examine the empirical relationship between credit default swap (CDS) premia and government bond spreads for Portugal, Italy, Ireland, Greece, and Spain (the ‘PIIGS’ countries). We find some evidence for a long-run relationship in the sense of cointegration for the two markets. In most cases (five out of seven), only CDS premia contribute to the price discovery process. In the other cases, both markets make a more or less equal contribution. All in all, this suggests that bond spreads react only sluggishly to long-term imbalances, as measured by the cointegrating relationship. In light of this, we can conclude that, in most cases, CDS markets are leading markets if there is a long-run relationship between the CDS and government bond spread markets. This may partly be due to liquidity effects.


C58 G01 G12 G15 


Greek debt crisis sovereign credit CDS market price discovery 


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Copyright information

© Swiss Society of Economics and Statistics 2011

Authors and Affiliations

  1. 1.Swiss National BankZurichSwitzerland
  2. 2.Wellershoff & Partners Ltd.ZurichSwitzerland

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