A dangerous unknown: interest rate risk in the financial system

Urgent action needed to tackle danger; current macro-pru tools still inadequate

Broken bridge

Conventional wisdom about the risk-free yield curve, which is the basis for the pricing of all long-term assets, has been shaken by recent monetary and regulatory policies. Policy rates in the major currencies have been zero or even negative for years. Massive and prolonged central bank purchases of bonds have made it harder to define an equilibrium long-term interest rate. New rules have induced banks and other regulated financial institutions to hold more government bonds. Neither officials

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