Sovereign bond markets lead in predicting emerging market credit risk.
The study looked at how the prices of government bonds and credit default swaps (CDS) in emerging markets are connected. They found that most of the time, changes in bond prices reflect changes in credit risk before CDS prices do. In some cases, CDS prices lead the way. The level of financial integration in these markets also affects how much influence bond prices have. Overall, global factors have a bigger impact on bond yields and credit risk than country-specific factors do.