The Bank for International Settlements (BIS) has warned spiking bond yields across the world threaten trillion of dollars in losses for investors and a fresh crisis for banks unless they are braced for the shock.
Swiss-based BIS said losses on US treasuries will reach $1trn if average yields rise by 300 basis points, reports the Telegraph.
It warned losses could range from 15% to 35% of GDP in the UK, France, Italy and Japan and even greater damage in a number of other countries.
“Such a big upward move can happen relatively fast,” BIS said, referencing the 1994 crash.
“Someone must ultimately hold the interest rate risk. As foreign and domestic banks would be among those experiencing the losses, interest rate increases pose risks to the stability of the financial system if not executed with great care.”
However, BIS said authorities must still proceed with monetary tightening regardless of these bond worries, warning QE and zero interest rates are already doing more harm than good, according to the Telegraph.
The warning from BIS comes after the US Federal Reserve set off the most dramatic spike in US borrowing costs for over a decade by hinting at an early exit from quantitative easing.
Yields on 10-year treasuries have jumped 80 basis points since the Fed began to talk about tapering the programme two months ago, closing at 2.51% on Friday.
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