Financial markets

Post n°292

How well have ECB rate hikes been transmitted to the money market?

Published on 11/25/2022

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By Benoit Nguyen and Miklos Vari

Since July, the ECB increased its key interest rates by 200 basis points in total (once by 50bps and twice by 75 bps). These are the largest single rate hikes of the ECB key interest rates. In this post, we examine to what extent these changes of policy rates passed through to the money market, the first step of monetary policy transmission. Transmission has been nearly complete in the unsecured market (e.g. on €STR) but subdued in the secured market (i.e. on repo transactions).

Graph 1: Changes for unsecured money market rates from July to November 2022
Graph 1: Changes for unsecured money market rates from July to November 2022 Source: ECB, Statistical Data Warehouse. Note: DFR stands for Deposit Facility Rate.
Updated on 11/25/2022 08:58
Post n°282

GDP-linked bonds: the bewitching song of the sirens

Published on 09/01/2022

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Par Sarah Mouabbi, Jean-Paul Renne and Jean-Guillaume Sahuc

Debt-to-GDP ratios in advanced economies increased considerably during the Great Recession and the recent pandemic, and may prove to be a source of vulnerability. Commentators propose indexing the debt service to GDP growth to provide the government with an automatic stabilizer for its financing. FNew fndings suggest that GDP-linked bonds are more expensive for the government and can only prevent high tail risks in debt-to-GDP ratios in the short run.

Chart 1 : Realized vs. expected real payoffs of one-year bonds with unit face value
Chart 1 : Realized vs. expected real payoffs of one-year bonds with unit face value Source: Mouabbi, Renne and Sahuc (2021).
Updated on 09/01/2022 08:38
Post n°281

A global shock to bond yields?

Published on 08/03/2022

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By Mattia Girotti, Guillaume Horny, Adrian Penalver and Anna Petronevich  

The co-movement of sovereign bond yields has been unusually strong in the most recent period. A global factor usually explains much of the variation in 10-year yields. What has been particularly striking over the recent months is the importance of a global factor in explaining 2-year yields. This suggests a common shock is driving expectations of monetary policy in the major advanced economies.

Chart 1 Global-local decomposition of French 2-year and 10-year sovereign yields
Chart 1 Global-local decomposition of French 2-year and 10-year sovereign yields Source: Bloomberg, authors’ calculations. Note: Solid lines represent the yields. Areas show the contribution of each factor relative to the 2015-2022 average rate. Latest observation: 06/07/2022.
Updated on 08/03/2022 09:02
Post n°278

Green bonds: is their growth sustainable?

Published on 07/12/2022

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By Tamaki Descombes, Antoine Kergadallan and Quoc-Trieu Le

Issuance of green bonds has been growing at a fast pace in the past 10 years, mainly under the impetus of the European Union and its Member States, which are the world's largest issuers. We take a closer look at this market and explore the challenges it poses, together with the prospects going forward: interactions with monetary policy, investor appetite, greenwashing risk, etc.

Chart 1: Green bonds issued in accordance with the International Capital Market Association’s principles
Chart 1: Green bonds issued in accordance with the International Capital Market Association’s principles Source: BloombergNEF, authors’ calculations
Updated on 07/13/2022 08:37
Post n°266

AI and banks’ own funds: a new determination?

Published on 04/20/2022

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By Hyacinthe Buisson, Henri Fraisse and Matthias Laporte

The increasing use of artificial intelligence (AI) or machine learning (ML) techniques could allow banks to develop new credit risk models. These techniques could lead to substantial reductions in capital requirements. However, the opaque nature of these algorithms and the governance challenges they raise might make their adoption less attractive.

Chart 1: Neural network models could lead to substantial reductions in capital requirements
Chart 1: Neural network models could lead to substantial reductions in capital requirements Source: Fraisse and Laporte (2022) forthcoming in the Journal of Banking and Finance.
Updated on 04/20/2022 10:02
Post n°263

Sanctions against Russia: the role of SWIFT

Published on 03/22/2022

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By Mathieu Gex, Marie-Aline Vives

In response to Russia’s military invasion of Ukraine, the Council of the European Union has adopted a series of restrictive economic and financial measures, including the exclusion of seven Russian and three Belarusian banks from the SWIFT global financial messaging system. This blog post explains the key role SWIFT plays in the international financial ecosystem.

Chart 1. Increase in daily SWIFT traffic over the last three years (in millions of messages)
Chart 1. Increase in daily SWIFT traffic over the last three years (in millions of messages) Source: SWIFT.
Updated on 03/22/2022 13:17
Post n°235

Is there a bubble in “green” equities?

Published on 10/26/2021

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By Tristan Jourde and Arthur Stalla-Bourdillon

Given the recent outperformance of those sectors best-positioned to accompany the ecological transition, some commentators have voiced fears that a bubble might be emerging in “green” equities. A systematic analysis based on the environmental scores (the “E “in ESG) of over 2,500 stocks in the Datastream Global Equity Index suggests that these fears may be overdone.

Chart 1: Trajectory of prices for clean, neutral and polluting sectors
Chart 1: Trajectory of prices for clean, neutral and polluting sectors Source: Datastream. Scope: World. BdF calculations.
Updated on 10/26/2021 16:48
Post n°189

What are the factors behind current high stock market valuations?

Published on 11/26/2020

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By Nicolas Chatelais and Arthur Stalla-Bourdillon

Despite the corrections at the end of 2018 and the Covid-19 shock, price-earnings ratios remain at high levels, particularly in the United States. However, based on indices adjusted for expected growth and the level of interest rates, this trend does not appear to be the result of irrational exuberance like in previous speculative episodes.

Chart 1: Cyclically adjusted P/Es and interest rates in the United States
Chart 1: Cyclically adjusted P/Es and interest rates in the United States Sources: S&P 500, Datastream, Fed Saint Louis & Philadelphia. Author’s calculations. Most recent value: October 2020
Updated on 11/26/2020 14:49
Post n°175

Credit mediation for businesses during the Covid crisis

Published on 07/31/2020

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By Raymond de Pastor

The health crisis has left a significant number of businesses in urgent need of cash. In response, public authorities have put in place various support mechanisms, including a scheme to provide State-Guaranteed Loans (SGLs). The credit mediation system is currently helping businesses that have received an initial refusal from a bank in response to their SGL request.

Number of requests for credit mediation from businesses (monthly average)
Chart 1: Number of requests for credit mediation from businesses (monthly average) Source: Banque de France, Credit Mediation Scheme for Businesses
Updated on 07/31/2020 08:54
Post n°167

Banks’ climate commitment and lending to brown industries

Published on 06/25/2020

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By Jean-Stéphane Mésonnier

We assess the link between banks' commitments to take climate issues seriously, measured by a climate performance rating based on their declarations, and the changes in their lending in France to greenhouse gas emitting industries between 2010 and 2017. A higher score appears to be associated with lower growth in lending to large enterprises in the five most carbon-intensive industries. However, lending to SMEs is not affected.

Chart 1: Banks’ pro-climate commitments and share of loans to firms in the most carbon-intensive industries in France.
Chart 1: Banks’ pro-climate commitments and share of loans to firms in the most carbon-intensive industries in France. Source: Banque de France, authors’ calculations.
Updated on 06/25/2020 14:32

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