OTC Derivatives Project

The Relationship between Euro Zone Sovereign CDS and Underlying Bond Markets

The OTC derivatives research employs intra-daily data to study the relationship between the euro zone sovereign CDS and underlying bond markets. Extreme events such as political disturbance in a particular country, shocks to macroeconomic factors such as oil prices, or macroeconomic surprises may cause abnormal changes in the prices, known as jumps. Jumps that affect broad markets and that are significantly correlated internationally are important to know for policy makers attempting to coordinate policies across borders. This project analyses from an empirical and theoretical perspective the relationship between the spreads on OTC credit default swap contracts and yields of the underlying sovereign bonds issued by European zone countries.