The COVID-19 Pandemic and Sovereign Bond Risk

Swiss Finance Institute Research Paper No. 20-42

North American Journal of Economics and Finance, forthcoming

41 Pages Posted: 21 May 2020 Last revised: 3 Aug 2021

See all articles by Alin Marius Andries

Alin Marius Andries

Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting

Steven Ongena

University of Zurich - Department of Banking and Finance; NTNU Business School; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Nicu Sprincean

Alexandru Ioan Cuza University of Iasi

Date Written: May 17, 2020

Abstract

Governments around the world are tackling the COVID-19 pandemic with a mix of public health, fiscal, macroprudential, monetary, and/or market-based policies. We assess the impact of the pandemic in Europe on sovereign CDS spreads using an event study methodology. We find that a higher number of cases and deaths and public health containment responses significantly increase the uncertainty among investors in European government bonds. Other governmental policies magnify the effect in the short run as supply chains are disrupted. Moreover, an increased debt-to GDP ratio significantly boosts the cumulative abnormal change of CDS spreads, which indicates that investors are concerned about countries that are too indebted and thus have a limited capacity to intervene and provide fiscal stimuli and emergency fiscal packages to businesses and households.

Suggested Citation

Andries, Alin Marius and Ongena, Steven R. G. and Ongena, Steven R. G. and Sprincean, Nicu, The COVID-19 Pandemic and Sovereign Bond Risk (May 17, 2020). Swiss Finance Institute Research Paper No. 20-42, North American Journal of Economics and Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=3605155 or http://dx.doi.org/10.2139/ssrn.3605155

Alin Marius Andries

Alexandru Ioan Cuza University of Iasi ( email )

Bvd. Carol nr. 22
Iasi, 700505
Romania

HOME PAGE: http://www.feaa.uaic.ro/faculty/marius-alin-andries/

Romanian Academy - Institute for Economic Forecasting ( email )

Calea 13 Septembrie nr. 13
Bucharest, 050711
Romania

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Sch├Ânberggasse 1
Z├╝rich, 8001
Switzerland

NTNU Business School ( email )

Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nicu Sprincean

Alexandru Ioan Cuza University of Iasi ( email )

Carol I Blvd, Nr.11
Iasi, 700506
Romania

HOME PAGE: http://www.uaic.ro

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