We use confidential granular data on euro area sovereign bond holdings to examine the heterogeneous behavior of investor types in response to country-specific geopolitical risk shocks. By distinguishing investor categories and accounting for their bond holding dynamics over time, we provide an empirical assessment of how different bond holders react to geopolitics. The analysis employs country-level geopolitical risk indices of the country of sovereign bonds, and applies local projection methods to estimate the dynamic responses of various investor groups to geopolitical risk shocks. In the case of high-debt euro area countries, i.e. Italy, France, Spain, and Belgium, we examine how geopolitical risks may trigger shifts in investor behavior that, in turn, could pose risks to fiscal sustainability.
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