How Does Geopolitical Risk Shape the Sovereign Bond Markets? Where the ICRG Data Yields Insights

As the Fed stood has stood pat on interest rate increases for the time being, our Paris-based research staff sent over some fantastic work dealing with the integration of the sovereign market, notably in terms of those factors that work towards its facilitation .

Using our ICRG data, and looking at 21 developed and 18 emerging countries, the authors found significant heterogeneity.

They study showed however that better spanning can significantly enhance market integration through dissipating local risk premiums.

Moreover, integration of the sovereign bond markets increases by about 10% on average, when a country moves from the 25th to the 75th percentile as a result of higher political stability and credit quality, lower inflation and inflation risk, and lower illiquidity. The 10% increase in integration leads to, on average, a decrease in the sovereign cost of funding of about 1% per annum.

(https://lnkd.in/eeWGgzcr)

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