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How Climate Transition Risk May Impact Sovereign Bond Yields

How might climate transition risk affect government bond portfolio performance? In this paper, we quantified the impact of transition risk on sovereign bond yields using MSCI’s Sovereign Bond Climate Value-at-Risk model. We find that transition risk might affect sovereign bonds not only through the country/market choice, but also through the maturity composition of the portfolio. The size and timing of these shocks can vary considerably, becoming large factors in some scenarios.

U.S. Treasury bond yield curve shocks under various scenarios



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