Fund Managers Are Updating Bond Models to Capture a New Risk
- Extreme weather has direct impact on real estate credit market
- Climate risks are resulting in mispricing of sovereign bonds
A wildfire in Mariposa County, California, US, on July 23, 2022.
Photographer: David Odisho/Bloomberg
A growing number of asset managers is reassessing bond values tied to real assets, as a spike in the frequency of flash floods, fires and storms hits conventional pricing models.
Mitch Reznick, head of sustainable fixed income at Federated Hermes, says climate risk is a key reason why the investment manager is now underweight real estate credit. Jonathan Bailey, global head of ESG and impact investing at Neuberger Berman Group LLC, says he’s increasingly looking at whether issuers have enough capital to deal with the fallout of climate change. And analysts at Barclays Plc say nature-related risks are being mispriced across sovereign bond markets, and will ultimately trigger downgrades.