Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Chart of the Week : Geopolitical Risk Index rises to a two-decade high
Christopher Dembik
Head of Macroeconomic Research
Summary: In today's 'Macro Chartmania', we focus on the Geopolitical Risk Index (GPR) - a geopolitical risk benchmark which gets back to 1899.
Download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments.
The Geopolitical Risk Index is based on the work of D. Caldara and M. Iacoviello (“Measuring Geopolitical Risk”, working paper, Board of Governors of the Federal Reserve Board, 2017). The methodology is rather simple as it counts the occurrence of words related to geopolitical tensions in leading international newspapers. As far as I know, this is the only geopolitical risk benchmark that gives a historical perspective since it gets back to 1899.
The GPR spikes around the two world wars, at the beginning of the Korean War (1950-53), during the Cuban Missile Crisis (1962), after 9/11 and now after the Ukraine invasion by Russia. It now stands at a two-decade high at 281 – close to the levels reached after 9/11 (the peak was at 303). This is the fourth highest level on record. The GPR is updated on a monthly basis. Given the evolution of the crisis in Eastern Europe, the April print is likely to keep moving higher, in our view. Contrary to the VIX, the correlation between the GRP and most financial instruments or assets (e.g. gold for instance) is poor. This is however an interesting indicator. This time, it does not only reflect the rise in geopolitical risk but also a profound paradigm shift in security policies for Europe and the rest of the world following the invasion of Ukraine.
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