ارزیابی ریسک اعتباری در CDS حاکمیتی و بازارهای اوراق قرضه: شواهدی از بحران منطقه یورو

We analyse the extent to which prices in the sovereign credit default swap (CDS) and bond markets reflect the same information on credit risk in the context of the current crisis of the European Monetary Union (EMU). We first document that deviations between CDS and bond spreads are related to counterparty risk, common volatility in EMU equity markets, market illiquidity, funding costs, flight-to-quality, and the volume of debt purchases by the European Central Bank (ECB) in the secondary market. Based on this we conduct a state-dependent price-discovery analysis that reveals that the levels of the counterparty risk and the common volatility in EMU equity markets, and the banks' agreements to accept losses on their holdings of Greek bonds impair the ability of the CDS market to lead the price discovery process. On the other hand, the funding costs, the flight-to-quality indicator and the volume of debt purchases by the ECB worsen the efficiency of the bond market.

In recent years many studies have analysed the relationship between credit default swaps (CDS) and bond spreads for corporate as well as for emerging sovereign reference entities.1 However, the relation between sovereign CDS and bond markets in developed countries has not attracted much interest until very recently, mainly for two reasons. First, sovereign CDS and bond spreads in developed countries have been typically very low and stable given the perceived high credit quality of most issuers (see Table 1). Second, trading activity in this segment of the CDS market was typically low. Table 1. CDS and bond spreads descriptive statistics. This table reports the CDS and bond spreads main descriptive statistics (mean and standard deviation) for different time periods (2004–2008, 2009, 2010, and 2011–2012). We group years 2011 and 2012 because there are only two months of observation for 2012. The bond spreads are obtained as the difference between country A's yield and the German yield. Bond CDS Austria 2004–2008 Mean 7 8 Std. dev 12 21 2009 Mean 52 104 Std. dev 25 49 2010 Mean 42 79 Std. dev 12 13 2011–2012 Mean 81 121 Std. dev 39 53 Belgium 2004–2008 Mean 9 8 Std. dev 17 14 2009 Mean 49 63 Std. dev 29 33 2010 Mean 57 110 Std. dev 27 43 2011–2012 Mean 173 221 Std. dev 74 69 Finland 2004–2008 Mean 5 6 Std. dev 12 9 2009 Mean 34 37 Std. dev 21 19 2010 Mean −6 31 Std. dev 13 3 2011–2012 Mean 27 53 Std. dev 26 20 France 2004–2008 Mean 4 6 Std. dev 9 9 2009 Mean 23 40 Std. dev 12 20 2010 Mean 24 70 Std. dev 8 18 2011–2012 Mean 64 137 Std. dev 40 55 Germany 2004–2008 Mean 5 Std. dev 7 2009 Mean 36 Std. dev 18 2010 Mean 40 Std. dev 8 2011–2012 Mean 70 Std. dev 24 Greece 2004–2008 Mean 25 23 Std. dev 36 36 2009 Mean 166 165 Std. dev 78 54 2010 Mean 779 682 Std. dev 290 242 2011–2012 Mean 2548 4013 Std. dev 1451 3448 The Netherlands 2004–2008 Mean 4 6 Std. dev 8 12 2009 Mean 30 53 Std. dev 18 30 2010 Mean 19 45 Std. dev 7 8 2011–2012 Mean 31 73 Std. dev 17 32 Ireland 2004–2008 Mean 9 13 Std. dev 20 31 2009 Mean 151 190 Std. dev 56 62 2010 Mean 262 302 Std. dev 164 154 2011–2012 Mean 758 723 Std. dev 225 127 Italy 2004–2008 Mean 19 19 Std. dev 25 27 2009 Mean 74 103 Std. dev 32 39 2010 Mean 109 165 Std. dev 40 42 2011–2012 Mean 303 321 Std. dev 158 147 Portugal 2004–2008 Mean 13 14 Std. dev 20 19 2009 Mean 71 76 Std. dev 37 27 2010 Mean 251 293 Std. dev 111 116 2011–2012 Mean 1132 914 Std. dev 440 316 Spain 2004–2008 Mean 8 12 Std. dev 15 20 2009 Mean 54 89 Std. dev 30 26 2010 Mean 152 205 Std. dev 74 67 2011–2012 Mean 291 328 Std. dev 82 74 Table options However, the global financial crisis that followed the collapse of Lehman Brothers in September 2008 triggered an unprecedented deterioration in public finances of the world's major advanced economies in a peacetime period. Since 2010, some countries in the euro area, including Greece, Ireland, Portugal, Spain and Italy, have faced some episodes of heightened turbulence in their sovereign debt markets. Against this context, the levels of perceived credit risk and the volume of trading activity in the sovereign CDS markets in many advanced economies have increased. The existing literature on credit risk has paid some attention to investigating the relationship between the corporate bond market and the corporate CDS markets, but only a few papers have studied whether the empirical regularities identified in the corporate markets, including those related to price discovery, are also found in the case of sovereign reference entities. The aim of this paper is to shed light on these latter issues within the context of the recent episodes of sovereign-debt crises in several countries in the European Monetary Union (EMU). Specifically, we analyse the theoretical equivalence relation between the sovereign bond yield spread (with respect to a risk-free benchmark) and the corresponding CDS spread.2 Abstracting from market frictions and other contractual clauses, both spreads should reflect the same information on the credit risk of a given reference entity and therefore should be equal. In other words, the basis, defined as the difference between the CDS spread and the corresponding bond spread, should be zero. If the basis differs from zero, the differences should be purely random and unrelated to any systematic factor. Moreover, in such a frictionless scenario, both spreads should incorporate the credit-risk information in a similar way, i.e., both markets should be equally efficient in terms of the process of credit-risk price discovery. The current European sovereign debt crisis poses a particularly interesting scenario to test for the previous hypotheses. In particular, we analyse the differences in the informational content of the EMU sovereign bond and CDS spreads. First, we study the possible causes of the deviations between the bonds and the CDS spreads. We find that the counterparty risk indicator has a negative and significant effect on the basis, especially after September 2008, when some of the most active protection sellers began to face financial difficulties. Funding costs have a negative effect on the basis due to their stronger effect on the demand for bonds relative to the demand for CDS, as the latter require less funding to take on the same risk position. A higher degree of liquidity in the bonds market relative to the CDS market has a positive effect on the basis given that ceteris paribus a more liquid bond implies a lower bond yield and spread. The effect of the common volatility in the EMU equity markets, proxied by the series corresponding to the first common component of the volatility of the EMU countries stock market indexes that is obtained from a principal component analysis (PCA), affects the basis positively and significantly. This suggests that the CDS market reacts more to changes in the EMU stock markets' volatility than bond market does. The demand of safer assets instead of risky assets (flight-to-quality), proxied by the product of the decreases in the correlations between the returns of risky and safe assets and the volatility for the European stock market, has a negative effect on the basis. This effect is due to the increase in the bond spreads that is motivated by the lower yields of the German bonds and the lower demand of riskier bonds. The volume of debt purchased by the European Central Bank (ECB) in the secondary market that has taken place since May 2010 increases the basis significantly. These purchases exert a negative effect on bond spreads. The fact that such an effect is not present (or is weaker) in the case of the CDS spreads may indicate that ECB interventions affect other components of bond prices other than default risk (e.g., through a fall in the bond's liquidity premium) or, simply, induce some overpricing effect in the bond market for a given level of default risk. Finally, the effect of the lagged basis suggests a high degree of persistence and, hence, a relatively low speed of adjustment of the basis. Second, we address the question of which market leads the credit-risk price-discovery process. To this aim, we follow a dynamic price-discovery approach based on Gonzalo and Granger (1995). Our analysis reveals that the price-discovery process is state-dependent. Specifically, the levels of the counterparty risk and the common volatility in EMU equity markets, and the successive agreements of private banks to accept losses on their holdings of Greek bonds impair the ability of the CDS market to lead the price-discovery process. The effect of counterparty risk is due to the perception of a lower quality of protection sold in the CDS market when this risk is high. The effect of the EMU equity markets volatility could be due to the fact that the information contained in bond spreads is more reliable during periods of high global risk. The agreements of private banks to accept losses on their holdings of Greek bonds could have caused a lack of confidence among investors in the CDS market after such agreements. On the other hand, the level of funding costs, the preference of the investors for the safest financial assets (flight-to-quality), and the volume of sovereign debt purchased by the ECB worsens the efficiency of the bond market in the price-discovery process. Funding costs affect bond buyers more than they do CDS buyers, as the CDS market allows for more leveraged positions. The investors' preferences for investing in the safest assets could have diminished the demand of most of the EMU countries' debt, especially debt issued by the peripheral economies, in favour of debt issued by countries with high credit quality (Germany, United States or United Kingdom) or safe assets (gold). The operations of the ECB seem to impair the informational content of bond prices as they relate to the actual credit risk of these assets. The remainder of the paper is organised as follows: Section 2 discusses the related literature. Section 3 describes the data. Section 4 analyses the determinants of the basis. Section 5 presents the results of the dynamic price-discovery test. Section 6 contains several robustness checks of the main results. Section 7 contains some final remarks.

This paper analyses the extent to which the sovereign CDS and bond markets reflect the same information on their prices in the context of the European Monetary Union. In approaching this question, we follow a two-stage approach, whose main insights are summarized below. We first analyse the role of some potential determinants of the basis, including several sources of risk (counterparty risk and the volatility of the EMU stock market indexes) and other market frictions. In particular, we find that the counterparty risk indicator has a negative and significant effect on the basis. Funding costs have a negative effect on the basis, while a high liquidity in the bond market relative to the CDS market has a positive effect. The EMU risk premium measured by means of the series corresponding to the common component of the volatility of the EMU countries stock market indexes affects the basis positively and significantly. A “flight-to-quality” indicator has a negative effect on the basis. The European Central Bank's purchases of sovereign debt in the secondary market in May 2010 were found to positively and significantly affect the basis. We then conduct a dynamic analysis of market leadership in the price-discovery process. An important result here is that the price-discovery process is clearly state-dependent. To shed some light on the determinants of such a state-contingent pattern of relative market informational efficiency we relate our measure of price-discovery to the set of factors identified in the previous stage as potential determinants of the bond-CDS basis. Specifically, the levels of the counterparty risk and the common volatility in EMU equity markets, and the banks' agreements to accept losses on their holdings of Greek bonds impair the ability of the CDS market to lead the price discovery process. On the other hand, the funding costs, the flight-to-quality indicator and the volume of debt purchases by the ECB worsen the efficiency of the bond market.