For bonds and equities, a little bit more of the probability mass implied by options11 is currently in the lower tail (beyond one standard deviation) than is the case over fairly long-runs of historical outturns12 (Table 2). But for equities, bonds, and dollar exchange rates, the lower probability mass is pretty well in line with the average ‘tail’ implied by options markets in the past (Charts 4 - 5). That does not suggest much sensitivity to the various risks preoccupying the official sector. 9  This is a different point from that, advocated for example by Chairman Bernanke, explaining a fall in long-maturity risk-free rates in terms of an ex ante imbalance of global savings and investment. The two explanations are not mutually exclusive, as the observed fall in yields on indexed government bonds could reflect a combination of a fall in the risk-free rate and falls in term premia. 10  For example see Bank of England Financial Stability Report, Overview, July 2006, pp 5-13 and Bank of England Inflation Report, November 2006, Chapter 5. 11  Using three-month expiry options. 12  Since the 1930s for equities; 1960s for bonds; and 1970s for exchange rates. 4  BIS Review 2/2007  Market contacts offer various explanations for this – some of them, I should make clear, sceptically. One – and here bear in mind my earlier remarks – is that not much really nasty will happen given the collective wisdom of the world’s monetary authorities.
BIS central bankers’ speeches  13  Figure 1 Repo-rate paths at the monetary policy meeting in July 2011 Per cent 5  Repo rate  5  Majority Alternative path  4  4  3  3  2  2  1  1  0  0 06  07  08  09  10  11  12  13  14  Source: The Riksbank  Figure 2 The Riksbank’s and the National Institute of Economic Research’s repo-rate paths in summer 2011 Per cent 5  5  Repo rate The Riksbank, PPR July 2011 NIER, June 2011  4  4  3  3  2  2  1  1  0  0 04  05  06  07  08  09  10  11  12  13  14  Note. The repo rate and the Riksbank’s forecasts refer to quarterly averages. The National Institute of Economic Research’s forecast refers to the repo rate at the end of the year.