We provide a new measure of sovereign country risk exposure (SCRE) to global sovereign tail risk based on information incorporated in 5-year sovereign CDS spreads. Our panel regressions with quarterly data from 53 countries show that macro risks have strong explanatory power for SCRE. Results show that SCRE increases for countries with less fiscal space, higher interest rates, and financial stability concerns. Exposure sensitivity to public sector leverage is shown to increase non-linearly with public debt and to decrease with central banks’ sovereign debt programs. Our results imply that good forward-looking macro-finance fundamentals, such as high expected GDP growth and low credit-to-GDP ratios protect countries against sovereign risk especially in times of global distress.

Financial support from the Fundación Ramón Areces Research Project Awards in Social Sciences. Germá López-Espinosa acknowledges funding from the Spanish Ministry of Economy and Competitiveness through grants ECO2012-33619 and ECO2016-78254. Antonio Moreno acknowledges funding from the Spanish Ministry of Economy and Competitiveness through grant ECO2015-68815. Antonio Rubia acknowledges funding from the Spanish Ministry of Economy and Competitiveness through grant ECO2014-58434-P.