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Contagion and credit defaults in sovereign debt markets following Covid
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Resumo(s)
Sovereign debt is a special asset class that supposedly inherits peculiar market dynamics.
Political considerations during default events add complexity for market participants and
contagion effects are suspected by scientific literature and financial professionals.
Predominantly cost of debt (yields), but also financial distress, can supposedly be driven by
contagion effects. Following the Covid disruption, we examine 33 sovereigns from emerging
and developing countries and derive that mere contagion effects exist but were less pronounced
during the crisis. Conversely, yields seemed to be more sensitive in relation to the sovereigns’
individual fiscal fragility during the shock, compared to pre- and post-Covid.
Descrição
Palavras-chave
Credit default swaps Credit spread Yield contagion Sovereign debt Debt capital markets Sovereign asset liability management Sovereign default