Abstract
AbstractThis paper examines the effects of COVID‐19 new infections on the financial sovereign risks in the group of ten (G10) countries. The paper utilises panel least squares regression using monthly data over the period February 2020–July 2021. Two sovereign risk measures are examined: the Spread of Government Bond Yields and Sovereign Credit Default Swap spread. The results of the robustness tests show that the spread of the COVID‐19 has affected the sovereign risks significantly and positively. Contagion risks have been extended to exchanges rates and growth rates of international reserves. This paper offers two contributions. First, the results show robust evidence on the impact of COVID‐19 on country's sovereign risks. Second, the severity of COVID‐19 on country's sovereign risks is further. The empirical results carry policy implications that (a) countries must sustain efforts for safeguarding the evolution of COVID‐19 pandemic since it is hindering country's credit worthiness, thus increasing sovereign risks, (b) the G10 countries are advised to follow the zero COVID‐19 strategy, (c) macro prudential measures have to be implemented along with monetary policies that mitigate the sovereign risks and (d) implement social measures to restore the health system and contain the uncertainty on both economic and social grounds.
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