(UK) – Increased interest rates – The Bank for International Settlements (BIS) has issued a caution to investors, urging them to prepare for an extended period of uncertainty in global interest rates and growing pressures within the financial system.
The BIS emphasized that the possibility of persistent high inflation could necessitate major central banks, including the US Federal Reserve and the European Central Bank, to maintain elevated borrowing costs.
BIS warns of prolonged high inflation
Claudio Borio, head of BIS’ monetary and economics unit, noted discrepancies between financial market expectations and central banks’ communications.
This warning comes amid the recent collapse of several mid-sized US banks and the emergency takeover of Credit Suisse by UBS due to sharp rate increases.
Borio also highlighted the vulnerability of business models and trading strategies that assumed rapidly declining rates, which may not materialize.
The report also expressed concerns about higher borrowing costs potentially causing credit losses for businesses and mortgage borrowers, with the impact varying across sectors and economies.
The BIS raised alarms about leveraged short positions in US Treasury futures, warning of the risk of “margin call spirals” that could disrupt core fixed income markets if not managed properly.