Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 453: Decoding climate-related risks in sovereign bond pricing: A global perspective

Sofia Anyfantaki (), Marianna Blix Grimaldi (), Carlos Madeira (), Simona Malovana () and Georgios Papadopoulos ()
Additional contact information
Sofia Anyfantaki: European Central Bank
Marianna Blix Grimaldi: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Carlos Madeira: Bank for International Settlements
Simona Malovana: Czech National Bank
Georgios Papadopoulos: Bank of Greece

Abstract: Climate change poses a major risk to financial stability by affecting sovereign credit risk through transition and physical risks. Using data from 52 developed and developing countries over two decades, the study finds that transition risk leads to higher sovereign yields, especially in developing and high-emission countries post-Paris Agreement. Physical risks, such as temperature anomalies, generally aren’t priced in, but high debt levels amplify yield increases during acute climate events. Medium-term projections show varied sovereign yield responses to different climate disasters, with the effects differing by income level and fiscal space, highlighting the complex financial impact of climate change.

Keywords: Climate risk; sovereign risk; transition risk; temperature change; natural disasters

JEL-codes: C23; E62; H63; Q54

Language: English

56 pages, July 1, 2025

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