Asset-liability management with ultra-low interest rates

In reply to the financial crisis, “Great Recession” and sovereign debt crisis, many central banks have pursued ultra-easy and far reaching unconventional monetary policies for several years. Yields on various bond classes – including euro area sovereign bond yields since the sovereign debt crisis has subsided – have reached extremely low levels. Prices on stocks and real assets have soared. In several countries, markets have been expecting a reversal of the interest rate cycle for some time now. As a result, the risk of – possibly substantial – price corrections in all these asset classes may be seen to have increased.

This environment poses challenges for banks’ asset liability and risk management as well as earnings. Institutional investors facing yield pressure may resort to more risky strategies, established forms of investment strategies may no longer be viable. Also official investors, like central banks and sovereign wealth funds, feel the pressure from lower current or future earnings and potential future risk from the current ultra-low yield and rather high pricing levels.

To discuss relevant issues, scenarios, options and risks in this environment, SUERF – The European Mone...