International Journal of Engineering and Information Systems (IJEAIS) ISSN: 2643-640X Vol. 4 Issue 11, November - 2020, Pages: 129-136 www.ijeais.org/ijeais 129 An Analysis of MENA Countries Spread CDS and their Relationship with Government Bonds Using VAR Model 1 Dr. Ramatu Ussif and 2 Prof. Dr Güven Sevil 1 Anadolu University, Graduate School of Social Sciences , Department of Business Administration (Finance) Eskişehir, Turkey ramatussif@gmail.com / ramatuussif@anadolu.edu.tr 2 Anadolu University, Open Education Faculty, Department of Finance, Eskişehir, Turkey gsevil@anadolu.edu.tr. Abstract— This article looks at the analysis of the Middle East and North American Countries (MENA Countries) Credit Default Swaps CDS Spread and the relationship they have with Government Bonds. The sample of data for this study comprises the monthly CDS spread and Government Bonds of Ten (10) MENA Countries from the period January 2005 to December 2015. The Ten main selected countries from MENA are (Bahrain, Turkey, Egypt, Saudi Arabia, Syria, Jordan, Morocco, Oman, United Arab Emirates, and Tunisia). Some of these Countries found themselves problematic with their public sector, in the early hours of the recent financial crisis/distress. The above countries were selected for this study due to the data availability under the study period. The researchers first compared the CDS spreads determinants and the government bonds and then test how the financial crisis has affected their market pricing. Secondly, we try to analyze the ‘Basis’ between the CDS Spreads and the Government bond to see if there exist a relationship or any serious effects between the Markets. The Vector Autoregression (VAR) model was used in the analysis. The Unit Root Test and the Granger Causality was also used to come out with a clear decision and conclusion about the relationships. We found out that CDS Prices Granger-Cause of the spreads affects the Government bonds. A feedback causality is also detected during the financial crisis and the economic turmoil period, therefore, signifying a high-risk aversion tends to baffle/perplex the mechanism of transmission between the CDS Spread and the Government bonds. Keywords— Credit Default Swaps, Government Bonds, VAR Model, Unit Root Test, MENA Countries Used Abbreviation AMF- Arab Monetary Fund CDS - Credit Default Swaps EMDB- Emerging Markets Database FEAS- Federation of Euro-Asian Stock Exchanges IFS- International Financial Statistics MENA- Middle East and North African Countries VAR- Vector Auto-Regression WDI-World Development Indicators 1. INTRODUCTION The recent financial crisis has taken a heavy toll on the global economy and has had a devastating effect on public finances. One of the issues that attracted the attention of policymakers and market participants is whether changes in sovereign bond yield differentials cause changes in the associated credit defaults swaps (CDS) or vice versa. Credit derivatives are an exciting innovation in financial markets. They have the potential to allow companies to trade and manage credit risks and market risks. The most popular credit derivative is a credit default swap (CDS). Our study is primarily motivated by recent developments in the market for government securities. These securities were until recently considered to be virtually risk-free assets; clearly, this is not the case anymore. Those countries that were already running a high public deficit and/or debt are severe to borrow money at low-interest rates in the bond markets and to finance their debt without altering its structure. The selected countries Bahrain, Turkey, Egypt, Saudi Arabia, Syria, Jordan, Morocco, Oman, United Arab Emirates, and Tunisia not an exception to this. The difficulties faced by these countries led some (primarily policymakers but also academics) to blame hedge funds for speculative attacks on CDS. Empirical analyses of the effects of CDS spread have to a large extent been addressed in terms of vector autoregressive (VAR) models, initiated by Sims (1980). Yet, studies that use VAR models to identify the interdependence have found only small effects of interaction between CDS and bond. In this study, we analyze the relationship between government Bond and CDS spread in the MENA countries using a VAR model that takes full account of the potential simultaneity of interdependence. Using a sample of ten MENA countries, this study tries to understand whether there is an interaction between bond markets and CDS spread. Relatively little empirical evidence is available that estimates these relationships in the MENA regions and this is the first study that addresses this relationship for some MENA countries. In sum, the response of stock markets in the MENA region is far from being homogenous across countries. In some countries, stock market returns depict an upward tendency while in other countries it declines or does not react at all. Another important finding that should be emphasized is that