Drivers of Sovereign Credit Default Swaps Markets in Korea, China and Japan

This study investigates the determinants of sovereign credit default swap (CDS) spreads in Korea, China, and Japan using quarterly data from 2008Q3 to 2024Q4. We estimate country-specific regression models incorporating macroeconomic fundamentals, domestic financial indicators, globa1l uncertainty, and demographic structure, along with crisis-specific intercept dummies for the 2008 subprime mortgage shock, the 2010 European sovereign debt crisis, and the COVID-19 pandemic. The results show that Korea's CDS spreads are driven primarily by global financial turmoil, with the subprime crisis exerting a significant upward impact, while domestic macro-financial variables play a limited role. For China, inflation dynamics—captured through changes in the consumer price index—exert a robust negative effect on CDS returns, indicating that lower inflation corresponds to increased sovereign credit risk. Japan exhibits a more complex structure in which government debt raises CDS spreads, whereas the elderly dependency ratio reduces them; moreover, the subprime shock lowers Japan's CDS spreads, reflecting the yen's safe-haven role. These findings demonstrate that sovereign credit risk pricing in East Asia is shaped by heterogeneous domestic conditions and asymmetric responses to global shocks, offering policy insights for strengthening regional financial stability.