A report prepared for the European Commission but not published until this week shows that borrowing costs for eurozone countries like Greece haven’t risen as a result of trading in credit default swaps. The report was commissioned in March by European finance ministers but never released publically.

“The CDS spreads for the more troubled countries seem to be low relative to the corresponding bond yield spreads, which implies the CDS spreads can hardly be considered to cause the high bond yields for these countries,” the commission was quoted as saying in Dutch finance daily Het Financieele Dagblad, which obtained the report under Freedom of Information legislation.

European leaders, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, have urged curbs on short-selling government bonds. But as the Commission notes in the actual report: “The results shows there’s no obvious mispricing in the sovereign bond and CDS markets.”

The report also makes the following observations:

“The CDS spreads for the more troubled countries seem to be low relative to the corresponding bond yield spreads, which implies that CDS spreads can hardly be considered to cause the high bond yields for these countries.”

"The empirical investigation that has been conducted by the task force on how the sovereign CDS and bond markets interact, provides no conclusive evidence that developments in the CDS market causes higher funding costs for Member States."

"All in all, the analysis of the fundamental factors shows that the differences in bond and CDS spreads across countries are justified. Government deficits, debt levels and current account deficits give a consistent picture of vulnerabilities."

To access the report, please click here.