The US-Russia Peace Talks on Ukraine: How Does Geopolitical Risk Affect International Bond Prices?

As European bonds are being sold, and some defense stocks are rising – given the concern the region will have to issue more debt to fund military investment in the wake of the US’s decision to enter peace talks solely with Russia – there is a solid literature out there that shows the connection between geopolitical risk and bond pricing.

 Using our ICRG ratings, a 2024 study found that a 10-point deterioration in a country’s ICRG rating (viz., an increase in political risk) is associated with an average annual increase in sovereign spreads of 106 basis points, with more marked impacts for high-debt and high-risk countries. The average reduction in GDP growth with such an increase in political risk is two percentage points.

(https://www.bruegel.org/analysis/incorporating-political-risk-analysis-sovereign-debt-sustainability)

In a similar published piece that used our ICRG data, via a comprehensive database of 109 international political crises from 1988 through 2007, and analyzing 34 debtor countries, a positive and significant link between international political risk and government bond yields were found. The study also found that international political risk has a reduced adverse effect on bond prices when the debtor country has a stable political system and strong investor protection.

https://www.sciencedirect.com/science/article/pii/S0378426614002702

With over 7.5 million back tested risk points – and appearing in just under 1,000 published works – PRS’ data series continues to produce meaningful empirical findings, profitable asset allocations, and informed corporate planning and valuation.

No other geopolitical risk firm occupies this position in the industry.

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