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Hungarian sovereign credit risk premium in international comparison during the financial crisis


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  • Lóránt Varga

    (Magyar Nemzeti Bank (central bank of Hungary))


As the CDS market has been the primary market for the price discovery of Hungarian sovereign credit risk in recent years, we can gain the most reliable information about Hungarian sovereign credit risk premia by analysing the price of Hungarian CDS contracts, in other words, the CDS spread. Credit default swaps are contractual agreements between two parties, whereby one party assumes the credit risk associated with a bond held by another party by undertaking to pay the other party the nominal value of the bond in the case that the issuer of the bond defaults, in exchange for which it receives a series of periodic payments from the other party during the term of the contract. The turnover and outstanding amount of CDS contracts related to Hungarian sovereign foreign currency bonds exceed the secondary market turnover and outstanding stock of Hungarian foreign currency bonds. Last autumn, Hungary was hit particularly hard by the significant decline in risk appetite observed in relation to emerging markets, and in October 2008 both the level and the relative international position of the Hungarian sovereign credit risk spread deteriorated substantially. Raising the key policy rate in October 2008, combined with the IMF credit facility, contributed largely to stopping the profound loss of confidence in Hungarian investment opportunities. The substantial decline in Hungarian sovereign CDS spreads observed in March-May 2009 can be almost entirely attributed to improving global risk appetite.

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Bibliographic Info

Article provided by Magyar Nemzeti Bank (the central bank of Hungary) in its journal MNB Bulletin.

Volume (Year): 4 (2009)
Issue (Month): 2 (July)
Pages: 43-52

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Handle: RePEc:mnb:bullet:v:4:y:2009:i:2:p:43-52

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Keywords: credit derivatives markets; credit default swap; sovereign foreign currency bond markets; sovereign credit risk; credit rating; price discovery.;

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Cited by:
  1. Sorin Gabriel Anton, 2011. "The Local Determinants Of Emerging Market Sovereign Cds Spreads In The Context Of The Debt Crisis. An Explanatory Study "," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 58, pages 41-52, november.
  2. Zalán Kocsis & Dénes Nagy, 2011. "Variance decomposition of sovereign CDS spreads," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), vol. 6(3), pages 36-50, October.


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