Sovereign credit rating changes impact emerging market CDS spreads significantly.
The study looked at how changes in a country's credit rating affect the cost of insurance against default (CDS spreads) in that country and other emerging economies. Positive rating changes have a bigger impact on CDS markets and can affect other countries too. Negative changes are anticipated by the market, and past CDS changes can predict the likelihood of a negative event. The main ways these changes spread to other countries are through shared creditors and competition in trade.