ECB warns fiscal, geopolitical risks 'underestimated' by markets

Bank's new report also notes rising interest rates in Japan could see capital flows shift

The ECB said in its latest financial stability review report that policy measures to address rising energy prices should be "temporary and targeted." © Reuters

FRANKFURT, Germany -- Downside risks related to geopolitical tensions as well as fiscal and macro-financial policies are being "underestimated" by markets, the European Central Bank has warned, as government spending aimed at countering high fuel prices and increased defense spending weigh on bond markets.