Hedge Fund Bond Market Bets Risk Yield Spikes, BIS Chief Warns

Bank for International Settlements head Pablo Hernandez de Cos has added his voice to escalating warnings about the role of non-bank firms including hedge funds in sovereign bond markets, at a time of historic government debt levels and a fraught geopolitical backdrop.

Bigger holdings by entities less regulated than banks “increases liquidity and lowers governments’ financing costs” when times are quiet, de Cos said. “However, this greater presence also increases the likelihood of sharp non-linear sovereign yield spikes through a number of channels.”