Does Geopolitics Shape Bond Yields and Economic Growth? Some Recent Evidence Using the International Country Risk Guide
‘ICRG is an economically and statistically significant determinant of sovereign bond yields and growth, even when controlling for several macroeconomic, governmental and external variables.’
‘We also uncover a significant positive predictive relationship between structural reforms and ICRG ratings.’
‘A deterioration of the ICRG ratings by ten units leads to a full sample annual average increase in bond yields by 106bps, establishing political risk as a determinant of debt dynamics through the yield channel.’
Some excerpts from a new Working Paper by Bruegel, the Brussels-based economic think tank.
https://www.bruegel.org/sites/default/files/2025-01/WP%2001%202025_0.pdf
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