Determinants of the Size of the Sovereign Credit Default Swap Market

Tobias Berg, Daniel Streitz

Research output: Contribution to journalJournal articleResearchpeer-review


We analyze the sovereign credit default swap (CDS) market for 57 countries, using a novel dataset comprising weekly positions and turnover data. We document that CDS markets—measured relative to a country’s debt—are larger for smaller countries, countries with a rating just above the investment-grade cutoff, and countries with weaker creditor rights. Analyzing changes in credit risk, we find that rating changes matter but only for negative rating events (downgrades and negative outlooks). In particular, weeks with downgrades and negative outlooks are associated with a significantly higher turnover in the sovereign CDS market, even after controlling for changes in sovereign CDS spreads. We conclude that agencies’ ratings are a major determinant of the size of the sovereign CDS market.
Original languageEnglish
JournalJournal of Fixed Income
Issue number3
Pages (from-to)58-73
Number of pages16
Publication statusPublished - 2016
Externally publishedYes

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