RT Journal Article
SR Electronic
T1 Determinants of the Size of the Sovereign Credit Default Swap Market
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 58
OP 73
DO 10.3905/jfi.2016.25.3.058
VO 25
IS 3
A1 Tobias Berg
A1 Daniel Streitz
YR 2015
UL https://pm-research.com/content/25/3/58.abstract
AB We analyze the sovereign credit default swap (CDS) market for 57 countries, using a novel dataset comprising weekly positions and turnover data. We document that CDS markets—measured relative to a country’s debt—are larger for smaller countries, countries with a rating just above the investment-grade cutoff, and countries with weaker creditor rights. Analyzing changes in credit risk, we find that rating changes matter but only for negative rating events (downgrades and negative outlooks). In particular, weeks with downgrades and negative outlooks are associated with a significantly higher turnover in the sovereign CDS market, even after controlling for changes in sovereign CDS spreads. We conclude that agencies’ ratings are a major determinant of the size of the sovereign CDS market.TOPICS: Credit default swaps, credit risk management