This Research Insight examines the impact of the unfolding European sovereign debt crisis, focusing on Greece, Portugal, Ireland, Spain, and Italy (GPISI). We use the new, short-horizon Barra Integrated Model (BIM Daily) to measure sovereign bond investment risk and provide insight into this market development. First, we highlight the background of this emerging crisis, in particular the links to government debt, fiscal deficits, maturity distribution, and levels of external borrowing. Then,...

This research bulletin is the first in a series covering various aspects of stress testing and scenario analysis. In this paper, we compare and contrast two historical scenarios that may be of current interest given the increasing uncertainty regarding the returns on sovereign fixed income investments. The scenarios we consider here are the 1998 Russian debt crisis and the 1994 US rate hike that followed the savings and loan (S&L) crisis. We put a stylized US pension plan through the...

High fiscal deficits, a sharp rise in the issuance of sovereign debt from major developed economies, rising inflation expectations, and possible changes in central bank rates could cause the yield curves from around the world to change significantly. This poses challenges for fixed income professionals who need to address possible non-parallel changes to the term structure. This paper illustrates the capabilities of Shift-Twist-Butterfly (STB) factor models to help address these challenges....