COVID-19 - Effects of Coronavirus on the European Sovereign CDS Market

Abstract

As coronavirus disease (COVID-19) spreads around the world, fear and uncertainty increase, driving financial markets and pushing the global economy into recession. Governments are addressing this pandemic with a mix of health, macroprudential, fiscal, monetary and market policies. In this article we assess the impact of the pandemic in Europe on sovereign CDSs using an event-study methodology. We find that a higher number of cases and deaths and public health containment responses significantly increase investor uncertainty in European government bonds. Other government policies amplify the short-term effect as supply chains are disrupted.