Asset Managers Are Updating Bond Models to Capture
a New Risk
https://www.bloomberg.com/news/articles/2023-10-22/asset-managers-are-updating-bond-models-to-capture-a-new-risk
Climate risks are resulting in mispricing of sovereign bonds
My take from July 2022:
https://thehill.com/opinion/finance/3543857-new-era-of-inflation-will-bedevil-central-banks-and-bond-markets/
Speeding up the process of decarbonization poses a new challenge to central banks and their efforts to keep inflation near the 2 percent target over the medium run. As Isabel Schnabel, an executive board member of the European Central Bank, recently noted: “As we build a more sustainable economy, we face a new age of energy inflation with three distinct but interrelated shocks that can be expected to lead to a prolonged period of upside pressure on inflation.”
The three shocks noted by Schnabel include “climatflation” (rising costs associated with the increasing frequency of natural disasters and extreme weather events), “fossilflation” (legacy costs associated with shifting away from fossil-fuel based energy sources), and “greenflation” (surging cost of key metals and minerals, such as nickel, lithium, cobalt and copper, that are necessary to build a greener economic future).
All in all, if structural forces have indeed shifted from being long-term disinflationary to now being long-term inflationary, tough challenges lie ahead for central banks in both the U.S. and Europe.
https://www.bloomberg.com/news/articles/2023-10-22/asset-managers-are-updating-bond-models-to-capture-a-new-risk
Climate risks are resulting in mispricing of sovereign bonds
My take from July 2022:
https://thehill.com/opinion/finance/3543857-new-era-of-inflation-will-bedevil-central-banks-and-bond-markets/
Speeding up the process of decarbonization poses a new challenge to central banks and their efforts to keep inflation near the 2 percent target over the medium run. As Isabel Schnabel, an executive board member of the European Central Bank, recently noted: “As we build a more sustainable economy, we face a new age of energy inflation with three distinct but interrelated shocks that can be expected to lead to a prolonged period of upside pressure on inflation.”
The three shocks noted by Schnabel include “climatflation” (rising costs associated with the increasing frequency of natural disasters and extreme weather events), “fossilflation” (legacy costs associated with shifting away from fossil-fuel based energy sources), and “greenflation” (surging cost of key metals and minerals, such as nickel, lithium, cobalt and copper, that are necessary to build a greener economic future).
All in all, if structural forces have indeed shifted from being long-term disinflationary to now being long-term inflationary, tough challenges lie ahead for central banks in both the U.S. and Europe.