Bond vigilante and Risk transmission: Difference between pages

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(Add credit risk.)
 
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''Risk management - central government borrowing - inflation risk - bonds.''
''Risk - systemic risk.''


A bond vigilante is a holder of long dated central government debt that sells - or threatens to sell - their holdings as a response to increased inflation risk or credit risk.
Risk transmission is the spread of risk from one sector to another, or within a sector.


If inflation were to be higher, then the redemption value of the long dated debt would be lower, in real (inflation adjusted) terms.


The longer dated the debt, the greater the effect on real terms values.
:<span style="color:#4B0082">'''''Credit risk transmission during crisis events'''''</span>


:"... we model a high-dimensional network of European CDS [Credit Default Swap] spreads to assess the transmission of credit risk to the non-financial corporate sector.


Selling bonds in this way results in their prices falling, and the cost of borrowing for the government to rise, expressed in rises in the yields on government debt.
:Our findings suggest a sectoral clustering in the CDS network, where financial institutions are located in the center and non-financial as well as sovereign CDS are grouped around the financial center.  


:The network has a geographical component reflected in differences in the magnitude and direction of real-sector risk transmission across European countries.


:<span style="color:#4B0082">'''''Bond vigilantes mean business, governments better beware'''''</span>
:While risk transmission to the non-financial sector increases during crisis events, risk transmission within the non-financial sector remains largely unchanged."


:"The sight of Britain's new finance minister shredding up his leader's economic policies on Monday [17 October] illustrated something very clearly - bond market vigilantes are back, they are bold and governments had better pay attention.
:''Analyzing credit risk transmission to the non-financial sector in Europe: a network approach - European Systemic Risk Board - Working Paper 78, July 2018.''


:It took just three weeks for markets to force the UK, the world's sixth largest economy and issuer of one of its reserve currencies, into its screeching U-turn...


:'It is really not the right time to experiment with fiscal policy,' AXA chief economist Gilles Moec said about the UK's moves, assessing that Monday's U-turn may have appeased 'the bond vigilantes for now'.
==See also==
 
*[[Contagion]]
:The term, bond vigilantes, refers to debt investors imposing fiscal discipline on profligate governments by forcing their borrowing costs higher."
*[[Credit default swap]]
 
*[[Credit risk]]
:''Reuters - 17 October 2022.''
*[[European Systemic Risk Board]]
 
*[[Sovereign]]
 
*[[Systemic risk]]
== See also ==
* [[Bond]]
* [[Credit risk]]
* [[Fiscal policy]]
* [[Gilts]]
* [[Hedging]]
* [[Inflation]]
* [[Inflation risk]]
* [[Real terms]]
* [[Reserve currency]]
* [[Risk management]]
* [[Yield]]
 
 
==External link==
*[https://www.reuters.com/markets/europe/bond-vigilantes-mean-business-governments-better-beware-2022-10-17/ Analysis: Bond vigilantes mean business, governments better beware]


[[Category:The_business_context]]
[[Category:The_business_context]]

Revision as of 02:37, 16 November 2021

Risk - systemic risk.

Risk transmission is the spread of risk from one sector to another, or within a sector.


Credit risk transmission during crisis events
"... we model a high-dimensional network of European CDS [Credit Default Swap] spreads to assess the transmission of credit risk to the non-financial corporate sector.
Our findings suggest a sectoral clustering in the CDS network, where financial institutions are located in the center and non-financial as well as sovereign CDS are grouped around the financial center.
The network has a geographical component reflected in differences in the magnitude and direction of real-sector risk transmission across European countries.
While risk transmission to the non-financial sector increases during crisis events, risk transmission within the non-financial sector remains largely unchanged."
Analyzing credit risk transmission to the non-financial sector in Europe: a network approach - European Systemic Risk Board - Working Paper 78, July 2018.


See also

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