This paper investigates the impact of a changing market environment on the pricing of credit default swaps (CDS) spreads written on debt from EURO STOXX 50 firms. A panel smooth transition regression reveals that parameter estimates of standard CDS‐pricing variables are time varying depending on current values of a set of variables such as the European Central Bank's systemic stress composite index, the Sentix index for the current and future economic situation and the VStoxx. These variables describe the market's transition between different regimes, thereby reflecting the impact of substantial swings in agents' risk perception on CDS spreads. Overall, our results confirm the importance of nonlinearities in the pricing of risk derivatives during tranquil and turbulent times. Copyright © 2016 John Wiley & Sons, Ltd.