Financial Stability Board Warns of Risks in Sovereign Bond Markets Amid Higher Interest Rates
The Financial Stability Board (FSB) has highlighted potential risks in the sovereign bond markets, particularly focusing on leveraged trading strategies that are not fully visible to authorities. The FSB's Nonbank Data Task Force, chaired by Andrew Bailey, is set to report on these strategies by mid-2026. The concern arises from the inability to fully map the trading activities and leverage levels of non-bank financial institutions (NBFIs) involved in these markets. This issue is compounded by the ongoing quantitative tightening and record issuance of sovereign debt, which could affect the liquidity and financing terms for marginal buyers. The FSB's findings are based on a recent working paper by the Bank for International Settlements, which suggests that the traditional sovereign-bank risk nexus has evolved, with NBFIs playing a more significant role. 
