swaps (CDS) for a panel of 36 countries including the Eurozone. We find that austerity practice generally leads to an … expectation of improved fiscal situations, which tends to help the CDS market grow more confidence in indebted sovereigns' ability … determining the prices of sovereign debt insurance. Our analyses further show that the behavior of CDS spreads is considerably …

strong co-movement in sovereign spreads. We rationalize these findings in an equilibrium model with recursive utility for CDS … macroeconomic uncertainty. Exploiting the high-frequency information in the CDS term structure across 38 countries, we estimate the …