Geopolitics, Geoeconomics, and Sovereign Risk: Different Shocks, Different Channels

Geopolitical and geoeconomic shocks reprice sovereign credit risk through distinct channels. Using daily data for 42 advanced and emerging economies over 2018–2025, we find that geopolitical shocks raise sovereign CDS spreads mainly through direct sovereign repricing, while the Global Financial Cycle (GFC) channel partly offsets this effect—an opposing, or scissors, movement. Geoeconomic shocks, by contrast, transmit primarily through financial conditions, policy-news intensity, and domestic amplification, with limited Direct-channel loading. A semistructural framework and a Shapley–Taylor decomposition of nonlinear machine-learning predictions recover four channel-level contributions: Direct, GFC, policy-news, and Local. Narrative local projections support the event-level channel predictions, and a sign-restricted SVAR on raw observables corroborates the same ranking without using the decomposition. Geopolitical effects decay with distance from the conflict zone, while geoeconomic effects are more diffuse. Liquidity provision mitigates GFC-driven spread widening, but not direct geopolitical sovereign repricing.