In the aftermath of the 2008-09 financial crisis investors became increasingly concerned about the fiscal outlook in a number of countries, including several of those in the euro area. As a result, sovereign credit spreads began rising sharply for a number of euro area countries. At their peak, yield spreads on sovereign bonds relative to German bonds reached several hundred basis points. These spreads had averaged only a few basis points in the years between the introduction of the euro and the start of the global financial crisis. As sovereign bond yields rose during the recent sovereign debt crisis, the interest in trading credit risk protection on euro sovereign borrowers via credit default swaps (CDS) grew substantially and spreads on such instruments also surged. These developments sparked strong interest in the market for sovereign CDS among policy makers and regulators. Of particular interest has been the interplay between the pricing of sovereign credit risk in CDS and in bond markets, and the possibility that one market could be systematically leading the other.[...]