Sovereign debt and credit default swaps ☆

• 成果类型: Article
• 署名作者: Chaumont, Gaston; Gordon, Grey; Sultanum, Bruno; Tobin, Elliot
• 署名单位: University of Rochester; Federal Reserve System - USA; Federal Reserve Bank - Richmond; Harvard University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2024.103921
• 发表日期: 2024
• 关键词: sovereign debt; CDS; directed search; Over-the-counter

摘要

How do credit default swaps (CDS) affect sovereign debt markets? We analyze how liquidity, exposure to default risk, and regulation affect the answer to this question using a sovereign debt model where investors trade bonds and CDS over the counter via directed search. Restricting portfolios can improve bond prices and bond -market activity, but the net effect depends on relative frictions in bond and CDS markets, the exposure of investors, and how the sovereign responds to the policy. Our novel identification strategy exploits confidential microdata to quantify trading frictions and the exposure distribution. The calibrated model generates realistic CDS -bond basis deviations, bid-ask spreads, and CDS volumes and positions. Our baseline specification predicts trading frictions and an inability to short sell bonds significantly improves sovereign debt prices, but policies that restrict CDS trading have small effects.