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The COVID-19 pandemic and sovereign credit risk

Wei-Fong Pan (University of Reading, Reading, UK)
Xinjie Wang (Southern University of Science and Technology, Shenzhen, China)
Ge Wu (University of Richmond, Richmond, Virginia, USA)
Weike Xu (Clemson University, Clemson, South Carolina, USA)

China Finance Review International

ISSN: 2044-1398

Article publication date: 20 May 2021

Issue publication date: 2 August 2021




The purpose of this study is to examine the effects of the coronavirus disease 2019 (COVID-19) pandemic on sovereign credit default swap (CDS) spreads using a large sample of countries.


In this paper, the authors use a wide set of the sovereign CDS data of 78 countries. To measure the magnitude of the COVID-19 pandemic, the authors use the daily change of confirmed cases collected from Our World in Data. They use panel regressions to estimate the impact of the COVID-19 pandemic on sovereign credit risk.


The authors show how sovereign CDS spreads have widened significantly in response to the COVID-19 pandemic. Based on the most conservative estimate, a 1% increase in COVID-19 infections leads to a 0.17% increase in sovereign CDS spreads. Furthermore, this effect is stronger for developing countries and countries with worse healthcare systems. Government policies partially offset the impact of the COVID-19 pandemic, although these same policies also lead to widening sovereign CDS spreads. Sovereign CDS spreads narrow dramatically several months after the outbreak of the COVID-19 pandemic. Overall, the results suggest that the ongoing COVID-19 pandemic has been a massive shock to the global financial stability.


This paper provides new evidence that COVID-19 widens sovereign CDS spreads. The authors further show that this widening effect is felt most strongly in developing economies.



Xinjie Wang acknowledges financial support from Southern University of Science and Technology (Grant No. Y01246110) and the Department of Education of Guangdong Province (Grant No. 2020KZDZX1189).


Pan, W.-F., Wang, X., Wu, G. and Xu, W. (2021), "The COVID-19 pandemic and sovereign credit risk", China Finance Review International, Vol. 11 No. 3, pp. 287-301.



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