The relative pricing of sovereign credit risk after the Eurozone crisis

We investigate whether riskier European countries compensate their debtholders properly by paying sufficiently higher bond yields than those of safer countries, during and after the sovereign debt crisis 2010–2012. Using relative pricing between credit default swap (CDS) spreads yields, we show that an inconsistent cross-sectional relationship risk emerges period for all countries. However, announcement Outright Monetary Transaction (OMT) program Central Bank, consistent is restored Eurozone only, a result likely due to reduction in transaction costs.