Abstract

The US Federal Reserve acts to ease pressure as coronavirus drives demand for US dollar. The US Federal Reserve set up dollar swap lines with fourteen countries in March 2020. Emerging markets such as Brazil and Mexico are among these countries. The swap lines will last at least six month. Credit default swap(CDS) spread is one of the major indicator of sovereign risk. In this study, the effect of dollar/real and dollar/peso swap agreements on Brazil and Mexico 5 years credit default swaps were examined. Turkey 5 years CDS value were also examined along with Brazil and Mexico credit default swaps.These three countries selected for following reasons. 1-These countries are emerging markets, and in G20. 2-US Federal Reserve will provide 60 billion dollar liqudity for the central banks of Brazil and Mexico. 3-Federal Reserve did not provide dollar liquidity for the central bank of Turkey. 4-Central Bank of Brazil did not use swap values as of the date of June 6, 2020. The correlation coefficients between Turkey and Brazil CDS values, between Turkey and Mexico CDS values, and between Brazil and Mexico CDS values (in the period of Nov. 2019-May. 2020) were calculated for the measure of the strength of the relationship.Three calculated corelation coefficents(r) are close to positive 1. This indicates that there is no effect of FED dolar swap lines on the CDS of Turkey, Brazil and Mexico. It is concluded that the main reason of the increases of the values of Credit Default Swaps is COVİD 19.