The chicken or the egg? A note on the dynamic interrelation between government bond spreads and credit default swaps

Manthos Delis () and Nikolaos Mylonidis

MPRA Paper from University Library of Munich, Germany

Abstract: This note provides the first empirical assessment of the dynamic interrelation between government bond spreads and their associated credit default swaps (CDS). We use data for the Southern European countries (Greece, Italy, Portugal and Spain) that found themselves with a problematic public sector in the dawn of the recent financial distress. We find that CDS prices Granger-cause government bond spreads after the eruption of the 2007 subprime crisis. Feedback causality is detected during periods of financial and economic turmoil, thereby indicating that high risk aversion tends to perplex the transmission mechanism between CDS prices and government bond spreads.

Keywords: Government bonds; Credit default swaps; Rolling Granger-causality tests (search for similar items in EconPapers)
JEL-codes: F34 G01 G12 (search for similar items in EconPapers)
Date: 2010-09-20
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (4)

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Journal Article: The chicken or the egg? A note on the dynamic interrelation between government bond spreads and credit default swaps (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:25270

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