Macroeconomic Uncertainty and Credit Default Swap Spreads

This paper empirically investigates the impact of macroeconomic uncertainty on the spreads of individual firms' credit default swaps (CDS). While existing literature ac- knowledges the importance of the levels of macroeconomic factors in determining CDS spreads, we find that the second moments of these factors--macroeconomic uncertainty--have significant explanatory power over and above that of traditional macroeconomic factors such as the risk-free rate and the Treasury term spread.