Influence of ECB for prices of credit default swaps and spread between bonds of European countries

<p>One of the most efficient methods of settling post crisis economics of Italian, Portugal and Greece Republics, Kingdom of Spain is to regulate prices of bonds and credit default swaps (CDS). European central bank (ECB) is one of the most powerful players of these markets and it was probably buying up bonds and CDS of PIGS countries. That is why the main goal of this research is to find out how interest rate on government bonds and CDS reacted at ECB policy.</p><p>Our research is empirical and based on the next data: Greece Republic (CDS and bonds, period 1.05.2009-9.03.2012), Republic of Germany (CDS and bonds, period 1.05.2009-9.03.2012), Italian Republic (CDS and bonds, 10 years maturity, period 1.05.2009-30.10.2011), and Kingdom of Spain (CDS and bonds, 10 years maturity, period 01.05.2009-01.05.2011). Source of data: <a href="http://www.bloomberg.com/">www.bloomberg.com</a>.</p><p>Firstly, we have proved that CDS is caused by government bonds, not vice versa and rebut a hypothesis about equable changes of these financial instruments during all period of time. Greek data shows that the hypothesis became disproved at January 2011 (10 years maturity), June 2009 and January 2011 (5 years maturity). Italian data: June 2009, July and November 2010 (10 years maturity).</p><p>Using dummy we found out several saltations which resulted in the next remark: spread of CDS prices was increasing faster or slower than spread of government bonds at some periods of time (variables stopped changing in proportion to each other). GARCH-model helped us to find volatility peaks, Greece: 18 January, May 2010, March 2012; Italy: September, December 2009, August 2010, March 2011; Spain: 10 May and 30 November 2010.</p><p>The main result of the research &ndash; approving the fact that ECB had been buying securities, that hardly influenced at CDS prices and government bond yields of the most problem countries of EU: Italian, Portugal and Greece Republics, Kingdom of Spain.</p>