Government-Bond Yields Intro
June 15, 2022
This interactive plot shows how decarbonization could affect government-bond yields and macroeconomic variables across five major countries. The results indicate that sovereign-bond investors may need to be attentive to the risks of “greenflation,” or an increase in inflation due to rising energy prices as countries start to decarbonize, and resulting higher yields.1 We used the MSCI Sovereign Bond Climate Value-at-Risk Model to quantify potential impacts on government-bond yield curves (bottom right). These results are derived from the macroeconomic modeling of the Network for Greening the Financial System (NGFS) and National Institute Global Econometric Model (NiGEM), which are widely used by central banks and investors globally.
How to interact with this plot: Click on a country name at the top to view all NGFS climate scenarios for each country. Use the clickable legend to select multiple NGFS climate scenarios (use shift-click to restore multiple scenario plots). Scroll left to right inside each individual chart to view the underlying data.
Sovereign-bond data as of April 30, 2022, from the MSCI Sovereign Bond Climate Value-at-Risk Model, and macroeconomic data as of June 30, 2021, from the phase-II NGFS scenarios. GDP data is from NiGEM modeling. A value of -2% in 2050 means that the level of GDP in the year 2050 for that scenario is 2% lower than the hypothetical level of GDP for the same year, but under the baseline scenario. Inflation data is from NiGEM modeling. A value of +100 basis points (bps) in 2050 means that the annual inflation rate in the year 2050 for that scenario is 100 bps higher than the hypothetical level of inflation for the same year, but under the baseline scenario. Government-bond-yield shocks are outputs from the MSCI Sovereign Climate Value-at-Risk Model. A value of +100 bps for 10 years means that the current 10-year government-bond yield for that scenario would be 100 bps higher than the hypothetical yield under the baseline scenario. Sources: Network for Greening the Financial System, National Institute Global Econometric Model, MSCI ESG Research LLC
Government-Bond Yields footnote
1We explain our analysis and intuition in further depth in our accompanying research paper: Shah, Bhaveer. “How Transition Risk Affects Sovereign Bond Yields.” MSCI Research Insight.