This Changes Everything: Climate Shocks and Sovereign Bonds

IMF Working Papers, June 5, 2020

Source details

Investigates the impact of climate change vulnerability and resilience on sovereign bond yields and spreads.
Sample: 98 advanced and developing countries over the period 1995–2017.
Methodological note: controls for conventional determinants of sovereign risk; keywords indicate use of "system GMM approach", "system GMM estimator", and related identification assumptions.

Vulnerability and resilience to climate change have a significant impact on the cost of government borrowing, after controlling for conventional determinants of sovereign risk.
Countries that are more resilient to climate change have lower bond yields and spreads relative to countries with greater vulnerability to climate-change–related risks.
Partitioning the sample reveals that the magnitude and statistical significance of these effects are much greater in developing countries with weaker capacity to adapt to and mitigate the consequences of climate change.

Subjects: Bond yields, Climate change, Environment, Financial institutions, Financial services, Public debt, Sovereign bonds, Yield curve.
Keywords: bond yield; Bond yields; Climate change; estimation methodology; Global; GMM estimation; government bond bond yield; government bond yield; government bond yields; resilience; South Asia; Sovereign bonds; spreads; system GMM approach; system GMM estimator; system GMM identification assumption; vulnerability; WP; Yield curve.

Source: "This Changes Everything: Climate Shocks and Sovereign Bonds", Serhan Cevik and João Tovar Jalles, IMF Working Papers, June 5, 2020.