The Relative Pricing of Sovereign Credit Risk after the Eurozone Crisis

50 Pages Posted: 30 Aug 2017 Last revised: 3 Apr 2020

Date Written: March 16, 2020


We investigate whether riskier European countries compensate their debtholders properly by paying out sufficiently higher bond yields compared to those of safer European countries, during and after the sovereign debt crisis of 2010-2012. Using the relative pricing between credit default swap (CDS) spreads and bond yields, we show that an inconsistent cross-sectional relationship between sovereign default risk and sovereign bond yields emerges during the crisis period for all European countries. However, after the announcement of the Outright Monetary Transaction (OMT) program by the European Central Bank, the consistent cross-sectional relationship between default risk and bond yields is restored for the Eurozone countries only, a result likely due to a reduction in transaction costs.

Keywords: Sovereign CDS, Bond Yields, Eurozone Crisis, OMT Programme

JEL Classification: G01, G12, E50

Suggested Citation

Corvino, Raffaele and Ruggiero, Francesco, The Relative Pricing of Sovereign Credit Risk after the Eurozone Crisis (March 16, 2020). Available at SSRN: or

Raffaele Corvino (Contact Author)

University of Torino & CERP ( email )

Corso Unione Sovietica 218bis
Piazza Arbarello 8
Torino, 10134
+39 3465316931 (Phone)


Francesco Ruggiero

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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