The Determinants of Sovereign Credit Default Swaps (CDS) Spreads

The paper examines the determinants of sovereign CDS spreadsfor 19 different primary sovereigns from January 2009 to December2018, using several macroeconomic variables. We apply apanel vector autoregressive (PVAR) model using a system-generalizedmethod of moment (System-GMM) methodology, to analysethe relationship between the CDS spreads and its macroeconomicdeterminants. Our model combines both local factors, suchas GDP growth rate, import, export, inflation rate, the balanceof payment, and government external debt with global factorssuch as S&P 500 Index (SP500) returns, CBOE Market VolatilityIndex (VIX), and 10-year U.S. Treasury. We find that both local(such as inflation and government external debt), and global(e.g., VIX) determinants of sovereign CDS spreads are statisticallysignificant through various periods for most maturities.