In this study, we examine whether sovereign risk matters in EMU corporate
bond markets.We utilize a sample of 897 bonds fromMarch 2006
to June 2012, thus covering a period characterized by uncertainty and
financial distress for both countries and companies within the EMU. Evidence
from emerging markets' corporate bond ratings and spreads suggests
that sovereign risk should also matter (or has started to matter
recently) in the EMU, which is currently undergoing a substantial sovereign
debt crisis that entered a critical phase starting in early 2010.