Credit-risk valuation in the sovereign CDS and bonds markets: Evidence from the euro area crisis

► We analyze if EMU sovereign CDS and bonds reflect the same information on credit risk. ► Deviations between CDS and bond spreads are explained by risk and liquidity factors. ► The contribution to price discovery by CDS and bond prices is state-dependent. ► Counterparty risk, equity volatility, and Greek debt haircuts worsened CDS efficiency. ► Funding costs, flight-to-quality and ECB debt purchases worsened bonds efficiency.