Impact of Macroeconomic and Market Factors on Russia’s Sovereign CDS Spread

Abstract

The article investigates the effect of macroeconomic indicators on Russia's CDS sovereign spread. The latest studies on Russia's case highlighted the impact of economic and financial background and global tendencies on sovereign CDS spread. In order to obtain significant factors, the ARMA-X for mean spread and GJR-GARCH for spread volatility were applied on the latest monthly and quarterly data. The econometric assessment carried out in the research revealed several significant factors: external factor, domestic factor, and uncertainty factor. The result was obtained for the whole sample. For the subsample before anti-Russian sanctions, domestic factors became insignificant. Significant factors included the following variables with the most factor loadings: the change in the gross international reserves of the Bank of Russia, emerging markets CDS, EMBI+, external debt, real effective rouble exchange rate, real GDP, OFZ yield, basic sectors output, implied rouble volatility, and Amihud illiquidity measure. Quantitative assessment has revealed the significant impact of CDS of developing countries, implied rouble volatility and the yield of Russian bonds.