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We explore the interplay between sovereign debt default/renegotiation and environmental factors (e.g., pollution from land use, natural resource exploitation). Pollution contributes to the likelihood of natural disasters and influences economic growth rates. The country can default on its debt at any time while also deciding whether to invest in pollution abatement. The framework provides insights into the credit spr…
ABSTRACT We model a loop between sovereign and bank credit risk. A distressed financial sector induces government bailouts, whose cost increases sovereign credit risk. Increased sovereign credit risk in turn weakens the financial sector by eroding the value of its government guarantees and bond holdings. Using credit default swap (CDS) rates on European sovereigns and banks, we show that bailouts triggered the rise o…
We study the nature of sovereign credit risk using an extensive sample of CDS spreads for 26 developed and emerging-market countries. Sovereign credit spreads are surprisingly highly correlated, with just three principal components accounting for more than 50 percent of their variation. Sovereign credit spreads are generally more related to the U.S. stock and high-yield bond markets, global risk premia, and capital f…
Abstract We provide new empirical evidence that U.S. expected growth and consumption volatility are closely related to the strong comovement in sovereign spreads. We rationalize these findings in an equilibrium model with recursive utility for credit default swap (CDS) spreads. The framework links a reduced-form default process with country-specific sensitivity to expected growth and macroeconomic uncertainty. Exploi…
The financial crisis and the ensuing recession have caused a sharp deterioration in public finances across advanced economies, raising investor concerns about sovereign risk. The concerns have so far mainly affected the euro area, where some countries have seen their credit ratings downgraded during 2009−11 and their funding costs rise sharply. Other countries have also been affected, but to a much lesser extent. Gre…
EMBI sovereign spread measures the yield premium on emerging-market sovereign debt over U.S. Treasuries and serves as a key gauge of EM credit risk and external financing stress.
BTP-Bund spread measures the yield difference between Italian and German government bonds and is a key indicator of euro-area sovereign stress and fragmentation risk.
Sovereign Default Risk — Probability and recovery pricing for government debt distress.
Europe Periphery Spreads — BTP-Bund and similar spreads as euro-area fragmentation gauges.
Sovereign Ceiling (Emerging Markets).
Transfer Risk (Emerging Markets).
Sovereign Immunity (Emerging Markets).
EM Local Currency Debt — Local-currency sovereign and corporate bonds with FX risk.
EMBI Spread (Emerging Markets).
Sovereign CDS Curve (Emerging Markets).
Treasury Curve sovereign — Rates and credit cash-market concept for fixed-income desks.
Swap Spread sovereign — Rates and credit cash-market concept for fixed-income desks.
Credit Spread sovereign — Rates and credit cash-market concept for fixed-income desks.
OAS Window sovereign — Rates and credit cash-market concept for fixed-income desks.
Sovereign CDS Brazil (Emerging Markets).
Sovereign CDS Mexico (Emerging Markets).
Sovereign CDS Chile (Emerging Markets).
Sovereign CDS Colombia (Emerging Markets).
Sovereign CDS Peru (Emerging Markets).
Sovereign CDS South Africa (Emerging Markets).
Sovereign CDS Turkey (Emerging Markets).
Sovereign CDS Poland (Emerging Markets).
Sovereign CDS Hungary (Emerging Markets).
Sovereign CDS Czech (Emerging Markets).
Sovereign CDS India (Emerging Markets).
Sovereign CDS Indonesia (Emerging Markets).
Sovereign CDS Thailand (Emerging Markets).
Sovereign CDS Malaysia (Emerging Markets).
Sovereign CDS Philippines (Emerging Markets).
Sovereign CDS Korea (Emerging Markets).
Sovereign CDS Taiwan (Emerging Markets).
Sovereign CDS China (Emerging Markets).
Sovereign CDS Egypt (Emerging Markets).
Sovereign CDS Nigeria (Emerging Markets).
Duration Bucket sovereign (Fixed Income).
Convexity Profile sovereign (Fixed Income).
ABS Tranche sovereign (Fixed Income).
Agency MBS sovereign (Fixed Income).
BTP-Bund spread measures the yield difference between Italian and German government bonds and is a key indicator of euro-area sovereign stress and fragmentation risk.
Carry Window sovereign (Fixed Income).
CMBS Spread sovereign (Fixed Income).
Convexity Profile sovereign (Fixed Income).
Covered Bond sovereign (Fixed Income).
Credit Spread sovereign — Rates and credit cash-market concept for fixed-income desks.
Duration Bucket sovereign (Fixed Income).
EM Local Currency Debt — Local-currency sovereign and corporate bonds with FX risk.
EMBI sovereign spread measures the yield premium on emerging-market sovereign debt over U.S. Treasuries and serves as a key gauge of EM credit risk and external financing stress.
Municipal Curve sovereign (Fixed Income).
OAS Window sovereign — Rates and credit cash-market concept for fixed-income desks.
Off The Run sovereign (Fixed Income).
On The Run sovereign (Fixed Income).
Roll Down sovereign (Fixed Income).
Sovereign CDS Brazil (Emerging Markets).
Sovereign CDS Chile (Emerging Markets).
Sovereign CDS China (Emerging Markets).
Sovereign CDS Colombia (Emerging Markets).
Sovereign CDS Curve (Emerging Markets).
Sovereign CDS Czech (Emerging Markets).
Sovereign CDS Egypt (Emerging Markets).
Sovereign CDS Hungary (Emerging Markets).