Main threat to financial stability is the "abrupt" revaluation of risk premiums – The Economic Journal

Main threat to financial stability is the "abrupt" revaluation of risk premiums - The Economic Journal


The Bank of Portugal (BdP) warned on Tuesday that the risk arising from the significant and abrupt revaluation of risk premiums at global and European level has worsened in recent months.

"Worsening geopolitical and economic uncertainty both globally and in Europe, the partial realization of some of the risks posed by trade tensions, the normalization of monetary policy in the US and a framework in which the slowdown in world economic growth is likely to lead to behavior risk aversion and the revaluation of risk premiums across various segments of the financial market, "notes the regulator in the Financial Stability Report.

The BOP also warns of the contagion effect of the Italian turbulence. Although the contagion of the increase in yields of the Italian public debt has been limited to other economies, the report points out that "if the situation / uncertainty intensifies, an additional revaluation of the Italian risk premium may occur, a reappearance of risks of redenomination and financial and economic fragmentation in the area of the euro and may result in a deterioration of market sentiment vis-à-vis other Member States. "

However, it stresses that the different levels or rates of adjustment expected of public debt may mitigate the effects of the risk.



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