This may be explained by common factors which affected both a country’s fiscal position and its firms’ profitability, or by changes in risk perceptions that affected both types of credit spreads. However, we have also observed episodes of decoupling between developments in sovereign and corporate credit risk premia.
Lately, it turned out that sovereign credit risk premia (in terms of CDS spreads) did not always provide a floor for all corporations operating in the respective country. A case in point is that CDS premia of several euro area telecommunication companies ranged above the respective sovereign CDS spreads in 2008 and early 2009, but this relation has been reversed during various periods thereafter.