Eurovita: solo la punta dell'iceberg? "Abrupt increases in sovereign bond yields can boost ICs’ demand for liquidity, with broader financial stability implications. To hedge against falls in interest rates, major ICs hold positions in interest rate swaps that come with margin requirements. Thus, when interest rates rise, ICs incur losses on the market value of their derivatives and need
to post variation margins. The faster the hike in sovereign bond yields, the faster the rise in margin calls and the stronger the pressure on ICs to raise liquidity (Graph A2.C), which typically entails sales of sovereign bonds. This could amplify the bond yield increases if ICs’ liquidity needs spill over to the sovereign bond market."