According to the latest analysis from Moody's Ratings, this upward trend is expected to continue, supported by a combination of both structural and cyclical factors, such as the dynamism of the gross domestic product (GDP) and the robustness of the US dollar.
The local currency bond markets of emerging countries have experienced notable growth in the last decade, especially in recent years, according to analysis by Moody's Ratings . This upward trend is expected to continue, supported by a combination of both structural and cyclical factors, such as the dynamism of the gross domestic product (GDP) and the robustness of the US dollar.
The breadth and depth of these markets have increased significantly over this period, providing debt issuers with greater opportunities to meet their financing needs and encourage greater bond issuance activity.
This growth, as Moody's notes, often benefits debt issuers in emerging economies by providing them with an alternative source of financing without the risk associated with changes in exchange rates, especially for those with limited access to the international capital market. However, the rating agency warns about the possibility that abrupt changes in the financial conditions of local markets could generate significant risks for participants.
Now, in detail, the analysis shows that between the third quarter of 2019 and the same period in 2023, the value of bonds in local currency in circulation issued in certain emerging markets has registered a compound annual growth rate (CAGR) of 10 .3%, surpassing the 4.3% growth experienced by international bonds in circulation, mostly denominated in US dollars. Asia, especially China, stands out as the leading region in issuing bonds in local currency.
Likewise, in the last decade, this growth has been especially notable in China, Indonesia, India and Peru, while it has been more moderate in Central and Eastern Europe, the Middle East and Africa (CEEMEA).
The growth observed in said period is the result of a combination of both structural and cyclical factors. Structural factors, such as the growth of the Gross Domestic Product (GDP), have demonstrated a high correlation with the demand for credit, thus promoting the availability of financial resources and strengthening investor confidence. Furthermore, savings pressures, together with the policies and regulations applied, have contributed to the development and sustained growth of the market.
In contrast, cyclical factors, such as the strength of the US dollar and historically high interest rates in the United States, have made international issues more expensive, especially when accompanied by the depreciation of local currencies.
On the other hand, there is a trend towards greater deepening of local bond markets. This is evidenced by an increase in the size and duration of individual (non-sovereign) bond issues, indicating that the international market is no longer the only option for large or long-term transactions.
It should be noted that an analysis of the distribution of the size of transactions between 2019 and 2023 revealed a significant increase in countries such as Mexico, China, Malaysia, Indonesia, Brazil and to a lesser extent in Colombia.
Finally, in Latin America, the growth of local currency bonds has been particularly notable in Mexico and Peru, where the market has seen average growth of 4% over the last decade.
They highlight the growth with a compound annual rate of 4.3% in Mexico and 7% in Peru. Although with less intensity, the Brazilian market has also maintained considerable activity in recent quarters.
