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The dynamic relationship between the sovereign CDS market and the Eurozone sovereign bond market (classified by maturity): Contagion or Spillovers?

amri amamou, souhir and hellara, slaheddine (2021): The dynamic relationship between the sovereign CDS market and the Eurozone sovereign bond market (classified by maturity): Contagion or Spillovers?

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Abstract

This paper aims to test the Credit default swaps (CDS) as vectors of contagion towards the bond market, classified by maturity, during the sovereign crisis for a sample of 10 developed Eurozone countries. By implementing an approach based on a VECM model subject to several econometric tests, this paper contributes to the literature by providing conclusions about the impact of a maturity effect on the vulnerability of a sovereign bond in the contagion facing the sovereign CDS market. Our findings suggest that the dynamic relationship between the CDS market and the public bond market is significantly related to the quality of the debt studied.

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