Bondholders in the United States alone would lose more than $1 trillion if yields leap, showing how urgent it is for governments to put their finances in order, the Bank for International Settlements said on Sunday.
The Basel-based BIS lambasted firms and households as well as the public sector for not making good use of the time bought by ultra-loose monetary policy, which it said had ended up creating new financial strains and delaying rather than encouraging necessary economic adjustments.
The BIS, a grouping of central banks, was one of the few organizations to foresee the global financial crisis that erupted in 2008.
Since then, government bond yields have sunk as investors seek a traditionally safe place to park funds, regulators tell banks to hold more bonds and central banks buy bonds as a means of pumping money into vulnerable economies.
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The BIS said in its annual report that a rise in bond yields of 3 percentage points across the maturity spectrum would inflict losses on U.S. bond investors - excluding the Federal Reserve - of more than $1 trillion, or 8 percent of U.S. gross domestic product.
The potential loss of value in government debt as a share of GDP is at a record high for most advanced economies, ranging from about 15 percent to 35 percent in France, Italy, Japan and Britain.