Credit investors use spreads to compare relative value and risk. Studies of emerging-market sovereign debt have shown that credit-default swaps tended to be a better measure of value than spreads computed from bonds. But is it still the case?

Since the global financial crisis, many have expressed concern about the health and future of credit-default swaps. Could institutional investors find the liquidity they need to hedge credit risk in subsequent periods? We examine CDS liquidity during the COVID-19 crisis.