Credit default swap and bond markets: which leads the other?
AbstractWe analyse the links between credit default swaps (CDSs) and bonds and try to determine which is the leader in the price discovery process. As the respective sizes of the markets are quite different for sovereigns and corporates, we consider a sample including both categories. For each entity, we compare CDS premia with spreads on a generic 5-year bond. The results show that the CDS market has a lead over the bond market for corporates. Moreover, the CDS market’s lead has been fuelled by the current crisis. This also holds for sovereigns, although not for low-yield countries.
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Bibliographic InfoArticle provided by Banque de France in its journal Financial stability review.
Volume (Year): (2010)
Issue (Month): 14 (July)
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