Fundamentals, real-time uncertainty and CDS index spreads

Abstract The high level of economic uncertainty linked to the pace recovery process can persist after a crisis and has implications for market pricing firms’ credit risk reflected in default swap (CDS) spreads. This paper examines role key proxies state its real-time determining Northern American CDX index Focusing on period following 2007–2009 global financial crisis, we find that measures output, employment, inflation, uncertainty, all significantly influence spreads, beyond impact conventional determinants. Furthermore, our results provide evidence sensitivity investment-grade high-yield differs across aspects. Moreover, out-of-sample predictive analysis identifies indicators with significant content quarter-ahead Taken together, findings indicate academic modelers practitioners employing more accurate representations macroeconomy CDS modeling improve upon models rely solely typically employed output variables or broad data aggregation.