Contagion of fear: Is the impact of COVID?19 on sovereign risk really indiscriminate?

This paper investigates the impact of infectious diseases on evolution sovereign credit default swap (CDS) spreads for a panel 77 countries. Using annual data over 2004–2020, we find that infectious-disease outbreaks have no discernible effect CDS spreads, after controlling macroeconomic and institutional factors. However, granular analysis using high-frequency indicates COVID-19 pandemic has had significant spreads. adverse appears to be more pronounced in advanced economies, which may reflect greater severity depth economic crisis these countries, at least during initial stage outbreak, as well underreporting developing countries due differences testing availability capacity. While stringent containment measures help lower fiscal burden efforts could undermine worthiness eventually push cost borrowing higher.