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Decoding climate-related risks in sovereign bond pricing: A global perspective

Author

Listed:
  • Anyfantaki, Sofia

    (European Central Bank)

  • Blix Grimaldi, Marianna

    (Financial Stability Department, Central Bank of Sweden)

  • Madeira, Carlos

    (Bank for International Settlements)

  • Malovana, Simona

    (Czech National Bank)

  • Papadopoulos, Georgios

    (Bank of Greece)

Abstract

Climate change poses a major risk to financial stability by affecting sovereign credit risk through transition and physical risks. Using data from 52 developed and developing countries over two decades, the study finds that transition risk leads to higher sovereign yields, especially in developing and high-emission countries post-Paris Agreement. Physical risks, such as temperature anomalies, generally aren’t priced in, but high debt levels amplify yield increases during acute climate events. Medium-term projections show varied sovereign yield responses to different climate disasters, with the effects differing by income level and fiscal space, highlighting the complex financial impact of climate change.

Suggested Citation

  • Anyfantaki, Sofia & Blix Grimaldi, Marianna & Madeira, Carlos & Malovana, Simona & Papadopoulos, Georgios, 2025. "Decoding climate-related risks in sovereign bond pricing: A global perspective," Working Paper Series 453, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0453
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    File URL: https://www.riksbank.se/globalassets/media/rapporter/working-papers/2025/no.-453-decoding-climate-related-risks-in-sovereign-bond-pricing-a-global-perspective.pdf
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    More about this item

    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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