BIS
BIS Working Paper: Geopolitical Risk and Emerging Market Sovereign Risk Premia
Published
Jul 15, 2026
Topics
Geopolitical risk, Sovereign risk, Emerging markets, Credit default swaps, EMBI spreads, Stress testing, Market risk, Country risk
Executive Summary
The Bank for International Settlements has published Working Paper No. 1368, “Geopolitical risk and emerging market sovereign risk premia,” dated July 2026. The paper is technical research from the BIS Monetary and Economic Department and states that the views are those of the authors, not necessarily the BIS or its member central banks. It does not introduce binding rules, reporting templates, filing requirements or implementation deadlines. The study finds that increases in the geopolitical risk index raise both five-year sovereign credit default swap spreads and J.P. Morgan EMBI spreads for 13 emerging market economies over January 2005 to October 2025. It also reports that geopolitical “threats” generate larger spread responses than realized “acts,” and that macro-financial conditions can amplify transmission, as illustrated around Russia’s 2022 invasion of Ukraine. Business impact is therefore analytical rather than regulatory: risk, treasury and investment teams should consider whether sovereign-risk dashboards, stress scenarios and model validation processes adequately capture geopolitical-risk sensitivity and state-dependent amplification.
What Changed
Previous
No prior obligation or BIS rule is replaced by this working paper.
New
The paper provides a research framework for incorporating geopolitical scenarios into sovereign-risk analysis.
Previous
Standard sovereign-risk monitoring may use aggregate geopolitical indicators or event narratives without separating threats from realized events.
New
The research supports separating anticipatory geopolitical threats from realized geopolitical acts in internal risk analysis.
Previous
A linear model would estimate an average geopolitical-risk effect across the full sample.
New
The paper shows that the same geopolitical-risk shock can have different sovereign-spread effects depending on prevailing macro-financial conditions.
Previous
Event analysis might treat geopolitical shocks as uniform across time and fundamentals.
New
The paper uses event-state configurations to demonstrate amplification when financial stress, commodity terms of trade and sovereign-risk co-movement deteriorate.
Previous
Not applicable; there was no consultation, rule proposal or final standard in this source.
New
No effective date, reporting deadline, regulatory template change or supervisory filing change is created.
Business Impact
Who is affected
Directly affected
treasury, sovereign risk, portfolio risk, stress testing and emerging market credit desks that use geopolitical scenarios as internal risk inputs.
Indirectly affected
compliance, investor reporting, model validation and senior risk committees relying on sovereign spread assumptions.
Jurisdictions
Global, Brazil, Chile, China, Colombia, Hungary, Indonesia, Malaysia, Mexico, Peru, Philippines, Poland, South Africa, Türkiye
Business processes
Emerging market sovereign risk monitoring, Country-risk limit calibration, Sovereign CDS and bond spread stress testing, Geopolitical-risk scenario design, Market-risk and credit-risk model validation, Portfolio hedging analysis
Estimated effort
Low
Compliance risk
Low
Affected Reports
| Field | Validation rule |
|---|
Recommended Actions
- 1AI generatedStep 1 of 7
Confirm internally that the BIS paper is treated as non-binding research rather than a regulatory requirement, because it is a BIS Working Paper and contains no effective date or implementation mandate.
- 2AI generatedStep 2 of 7
Review sovereign-risk dashboards to assess whether geopolitical risk, five-year sovereign CDS spreads and EMBI spreads are monitored together for material EME exposures.
- 3AI generatedStep 3 of 7
Consider adding separate “threat” and “realized event” geopolitical-risk narratives to stress scenarios, reflecting the paper’s finding that threats can have stronger spread effects than acts.
- 4AI generatedStep 4 of 7
Assess whether existing sovereign spread models allow for state-dependent amplification under tighter financial conditions, weaker commodity terms of trade or higher public-debt vulnerabilities.
- 5AI generatedStep 5 of 7
For portfolios with EME sovereign bonds or CDS hedges, test whether hedging assumptions remain robust when geopolitical shocks affect CDS and EMBI spreads differently.
- 6AI generatedStep 6 of 7
Use the paper as an input to model-risk discussions, but avoid presenting its coefficients as regulatory calibration requirements unless separately adopted by a competent authority.
- 7AI generatedStep 7 of 7
Monitor whether BIS, IMF, central banks or supervisors subsequently reference geopolitical-risk amplification in formal stress-testing or supervisory guidance.
Timeline
other
Jan 2005
Start of the monthly sample period used in the BIS study for five-year sovereign CDS and EMBI spreads across 13 emerging market economies.
other
Dec 2021
State-dependent analysis evaluates the pre-invasion escalation phase of the Russia-Ukraine conflict using December 2021 macro-financial conditions.
other
Jun 2022
State-dependent analysis evaluates the post-invasion aftermath four months into the Russia-Ukraine conflict using June 2022 macro-financial conditions.
other
Oct 2025
End of the monthly empirical sample period used in the BIS study.
publication
Jul 2026
BIS Working Paper No. 1368 published by the BIS Monetary and Economic Department.
Sources
AI-generated analysis is based on the following primary sources. Always verify against the official publication.
- Working paperBank for International SettlementsJul 2026BIS Working Papers No. 1368: Geopolitical risk and emerging market sovereign risk premia ↗
https://www.bis.org/publications/working-paper-1368-geopolitical-risk-and-emerging-market-sovereign-risk-premia.pdf
Related Evidence
Verified source support for this analysis
The evidence agent checks whether the drafted finding is supported by official publications and relevant public source material.
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