Sovereign default risk premia: Evidence from the default swap market

► We extract risk premia embedded in emerging market sovereign default swaps using a term structure model. ► Risk premia decrease over the sample, 2003‐07, and rebounds at the start of the 'credit crunch.' ► Daily risk premia co‐move with US macro variables and corporate default risk. ► Global factors explain most of Latin American countries' premia, and local factors best explain European and Asian premia. ► Conditioning on lagged local and global variables at a weekly frequency, sovereign risk premia are highly predictable.