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This article provides new evidence on the dynamic dependences of European corporate credit spread in three markets: bond, Credit Default Swap (CDS) and Asset Swap (ASP). Using daily data from 2005 to 2011, we find that credit spread returns are primarily driven by innovations. The intra-market dependence decreases for bond and ASP innovations during the 2007--2009 subprime crisis but increases for CDS due to the increase of counterparty risk. After the summer of 2009, we find a convergence to the precrisis levels. ASP and bond innovations are closely related suggesting that the cash component (bond) dominates the ASP innovations' behaviour. On the other hand, CDS's innovations are unrelated to the bonds' and ASP's innovations.

An Empirical Analysis of the Dynamic Dependences in the European Corporate Credit Markets: Bonds vs. Credit Derivatives