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Abstract

In the article the author analyses the impact of the Financial Crisis, especially the Greek fiscal one, on the sCDS prices in Europe. The aim of the article is to assess the ability of the sCDS premia to price the risk of countries before and during the Greek crisis. The author analyses sCDS premia of maturity 10 years together with the so called bond-spreads, i.e. the spreadsbetween the countries’ bond indexes and the risk free rate of the region (in our case it was the yield of German bonds of corresponding maturity – 10 years).The idea was to check whether there occurred any discrepancies in the risk valuation via the two measures, as a consequence of the Greek crisis. The data is taken daily and covers the period of 2008‒2012. Based upon the results obtained in the research we conclude that the Greek crisis indeed influenced the relationships between the two measures of risk, however the degree of the influence was different in different countries. The relationships between the two measures of risk were totally broken only in the case of Greece, while in the other countries the relationships either were not distorted or had been broken already at the beginning of the financial crisis (2008/2009). The Greek problems were indeed reflected in volatilities of all analysed instruments; however triggering the credit event affected only Greek bonds dynamics.
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Abstract

The goal of the paper is to verify the direction of sovereign risk transmission between sovereign CDS and sovereign bond markets in the Central European economies: the Czech Republic, Hungary and Poland. We focus on the hectic crisis period of 2008-2013. On the one hand, the sCDS market is said to react faster to the news than the sovereign bonds market. On the other hand, the bond market is related more closely to the internal situation of the country than the sCDS one and thus can price the sovereign risk more accurate. Moreover, the relationships between the markets can change during crisis time. We find that in the case of most risky and most indebted economy in Hungary there was a feedback between sCDS and sovereign bonds risk. In the case of Poland sCDS market risk Granger caused the risk of sovereign bonds – if we exclude instantaneous causality from the analysis; when it is included, feedback occurred. Eventually, in the case of the Czech Republic the risk of sCDS market Granger caused risk of the bonds market.
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