The Term Structure of CDS Spreads and Sovereign Credit Risk
Author: Patrick Augustin
Publication: Journal of Monetary Economics, Forthcoming
Abstract:听
The shape of the term structure of credit default swap spreads is an informative signal about the importance of global and domestic risk factors to the time variation of sovereign credit spreads.聽Exploiting cross-country heterogeneity among 44 countries, I document that the importance of聽global and country-specific risk in explaining sovereign credit risk varies with the sign of the slope聽of the term structure and the duration of its inversion. A model is used to show that global聽uncertainty shocks determine spread changes when the slope is positive, and that domestic shocks聽are more important when the slope is negative.
Read article: Journal of Monetary Economics
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