Decomposing the term structures of local currency sovereign bond yields and sovereign credit default swap spreads

摘要: Abstract In this study, we analyze the relationship between term structures of local currency-denominated sovereign bond yields and foreign credit default swap (CDS) spreads for developed countries. We develop a consistent pricing model CDS spreads, which allows us to decompose these into risk non-credit (e.g., convenience yield or liquidity risk). euro area countries, show that components are mainly related equity markets proxy regulatory incentive global dealer banks. core countries area, component spread is flight at all maturities, function as yield. During debt crisis in European market, peripheral risk. At short end structure, relation stronger than longer maturity. On other hand, relationships factors weak fluctuations driven by both country groups.