Abstract The shape of the term structure of credit default swap spreads is an informative signal about the importance of global and domestic risk factors to the time variation of sovereign credit spreads. Exploiting cross-country heterogeneity among 44 countries, I document that the importance of global and country-specific risk in explaining sovereign credit risk varies with the sign of the slope of the term structure and the duration of its inversion. A model is used to show that global uncertainty shocks determine spread changes when the slope is positive, and that domestic shocks are more important when the slope is negative.