Abstract:
This article looks at the analysis of the Middle East and North American Countries (MENA Countries) Credit Default Swaps CDS Spread and the relationship they have with Government Bonds. The sample of data for this study comprises the monthly CDS spread and Government Bonds of Ten (10) MENA Countries from the period January 2005 to December 2015. The Ten main selected countries from MENA are (Bahrain, Turkey, Egypt, Saudi Arabia, Syria, Jordan, Morocco, Oman, United Arab Emirates, and Tunisia). Some of these Countries found themselves problematic with their public sector, in the early hours of the recent financial crisis/distress. The above countries were selected for this study due to the data availability under the study period. The researchers first compared the CDS spreads determinants and the government bonds and then test how the financial crisis has affected their market pricing. Secondly, we try to analyze the 'Basis' between the CDS Spreads and the Government bond to see if there exist a relationship or any serious effects between the Markets. The Vector Autoregression (VAR) model was used in the analysis. The Unit Root Test and the Granger Causality was also used to come out with a clear decision and conclusion about the relationships. We found out that CDS Prices Granger-Cause of the spreads affects the Government bonds. A feedback causality is also detected during the financial crisis and the economic turmoil period, therefore, signifying a high-risk aversion tends to baffle/perplex the mechanism of transmission between the CDS Spread and the Government bonds.
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