Warning
of new financial crisis as bond yields spike
The
Bank for International Settlements (BIS) has warned spiking bond
yields across the world threaten trillion of dollars in losses for
investors and a fresh crisis for banks unless they are braced for the
shock.
24
June, 2013
Swiss-based
BIS said losses on US treasuries will reach $1trn if average yields
rise by 300 basis points, reports the Telegraph.
It
warned losses could range from 15% to 35% of GDP in the UK, France,
Italy and Japan and even greater damage in a number of other
countries.
"Such
a big upward move can happen relatively fast," BIS said,
referencing the 1994 crash.
"Someone
must ultimately hold the interest rate risk. As foreign and domestic
banks would be among those experiencing the losses, interest rate
increases pose risks to the stability of the financial system if not
executed with great care."
However,
BIS said authorities must still proceed with monetary tightening
regardless of these bond worries, warning QE and zero interest rates
are already doing more harm than good, according to the Telegraph.
The
warning from BIS comes after the US Federal Reserve set off the most
dramatic spike in US borrowing costs for over a decade by hinting at
an early exit from quantitative easing.
Yields
on 10-year treasuries have jumped 80 basis points since the Fed began
to talk about tapering the programme two months ago, closing at 2.51%
on Friday.
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