The goal of this research project is to empirically analyse the intraday dynamics of Euro area sovereign credit spreads in credit default swap (CDS) and bond markets. One of our key contributions is the use of intraday price data for CDS and government bond markets, which enables us to estimate the spread dynamics and the price discovery implications in a substantially more accurate way than existing studies on sovereign credit markets. Further, we test the role of market liquidity as a potential key factor for the trading behavior of investors, as liquidity frictions limit investors’ ability to arbitrage between CDS and bond markets. In the course that new (public or private) information about sovereign credit risk becomes available, investors take positions in the cash bond or in the CDS market (or both). Depending on the characteristics of each market segment, for example relative liquidity, new information may tend to be incorporated quicker in one market than in the other. As a result, price discovery should take place mainly in the more liquid market segment. Further, we empirically measure the impact of Euro area sovereign credit risk spillover (contagion) effects conditioned on relative liquidity of the credit risk channel (CDS and cash bond market). Our empirical test approach also provides evidence on the role of speculative trading in the Euro area sovereign CDS market during the sovereign debt crisis.