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Intraday dynamics of euro area sovereign CDS and bonds

Author Info

Listed author(s):
  • Jacob Gyntelberg
  • Peter Hördahl
  • Kristyna Ters
  • Jörg Urban

Abstract

The recent sovereign debt crisis in the euro area has seen credit spreads on sovereign bonds and credit default swaps (CDS) surge for a number of member states. While these events have increased interest in understanding the dynamics of sovereign spreads in bond and CDS markets, there is little agreement in the literature as to whether one of the two markets is more important than the other in terms of price discovery of sovereign credit risk.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 423.

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Length: 87 pages
Date of creation: Sep 2013
Handle: RePEc:bis:biswps:423
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Keywords: Sovereign credit risk; credit default swaps; price discovery; intraday;

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Fontana, Alessandro & Scheicher, Martin, 2016. "An analysis of euro area sovereign CDS and their relation with government bonds," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 126-140.
  2. Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-1199, September.
  3. Lehmann, Bruce N., 2002. "Some desiderata for the measurement of price discovery across markets," Journal of Financial Markets, Elsevier, vol. 5(3), pages 259-276, July.
  4. repec:bla:restud:v:57:y:1990:i:1:p:99-125 is not listed on IDEAS
  5. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
  6. Hansen, Bruce E., 1992. "Efficient estimation and testing of cointegrating vectors in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 87-121.
  7. Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2789-2811, November.
  8. de Jong, Frank, 2002. "Measures of contributions to price discovery: a comparison," Journal of Financial Markets, Elsevier, vol. 5(3), pages 323-327, July.
  9. Baillie, Richard T. & Geoffrey Booth, G. & Tse, Yiuman & Zabotina, Tatyana, 2002. "Price discovery and common factor models," Journal of Financial Markets, Elsevier, vol. 5(3), pages 309-321, July.
  10. Roberto Blanco & Simon Brennan & Ian W. Marsh, 2005. "An Empirical Analysis of the Dynamic Relation between Investment-Grade Bonds and Credit Default Swaps," Journal of Finance, American Finance Association, vol. 60(5), pages 2255-2281, October.
  11. Kasing Man & Junbo Wang & Chunchi Wu, 2013. "Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation," Management Science, INFORMS, vol. 59(3), pages 695-714, September.
  12. Arce, Oscar & Mayordomo, Sergio & Peña, Juan Ignacio, 2013. "Credit-risk valuation in the sovereign CDS and bonds markets: Evidence from the euro area crisis," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 124-145.
  13. Marco Bianchetti, 2009. "Two Curves, One Price: Pricing & Hedging Interest Rate Derivatives Decoupling Forwarding and Discounting Yield Curves," Papers 0905.2770, arXiv.org, revised Jul 2012.
  14. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-193, January.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  16. Ammer, John & Cai, Fang, 2011. "Sovereign CDS and bond pricing dynamics in emerging markets: Does the cheapest-to-deliver option matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 369-387, July.
  17. Sergio Mayordomo & Juan Ignacio Peña & Juan Romo, 2011. "The effect of liquidity on the price discovery process in credit derivatives markets in times of financial distress," The European Journal of Finance, Taylor & Francis Journals, vol. 17(9-10), pages 851-881, November.
  18. Haibin Zhu, 2006. "An Empirical Comparison of Credit Spreads between the Bond Market and the Credit Default Swap Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(3), pages 211-235, June.
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Cited by:

  1. Paiardini, Paola, 2015. "Informed trading in parallel bond markets," Journal of Financial Markets, Elsevier, vol. 26(C), pages 103-121.
  2. Peat, Maurice & Svec, Jiri & Wang, Jue, 2015. "The effects of fiscal opacity on sovereign credit spreads," Emerging Markets Review, Elsevier, vol. 24(C), pages 34-45.
  3. Rubia, Antonio & Sanchis-Marco, Lidia & Serrano, Pedro, 2016. "Market frictions and the pricing of sovereign credit default swaps," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 223-252.
  4. Moisă Altăr & Alexandru-Adrian Cramer & Adam-Nelu Altăr-Samuel, 2015. "Sovereign Financial Asset Market Linkages across Europe During the Euro Zone Debt Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 29-49, December.
  5. Massimo Ferrari & Kristyna Ters, 2017. "The benefits of using large high frequency financial datasets for empirical analyses: Two applied cases," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43 Bank for International Settlements.
  6. Dufour, Alfonso & Stancu, Andrei & Varotto, Simone, 2017. "The equity-like behaviour of sovereign bonds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 25-46.
  7. Sebastian Deininger & Dietmar Maringer, 2017. "Channels of Sovereign Risk Spillovers and Investment in the Manufacturing Sector," Working papers 2017/07, Faculty of Business and Economics - University of Basel.
  8. Kocsis, Zalan & Monostori, Zoltan, 2016. "The role of country-specific fundamentals in sovereign CDS spreads: Eastern European experiences," Emerging Markets Review, Elsevier, vol. 27(C), pages 140-168.
  9. repec:rnp:ecopol:ep1708 is not listed on IDEAS
  10. Lubos Komarek & Kristyna Ters & Jorg Urban, 2016. "Intraday Dynamics of Euro Area Sovereign Credit Risk Contagion," Working Papers 2016/04, Czech National Bank, Research Department.

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