Governments in Asia and Europe are increasingly shunning U.S. dollar-denominated debt, opting for local currency issuance to mitigate exposure to rising U.S. yields and currency volatility. This shift reflects broader concerns about U.S. government finances.
Data from Dealogic reveals a 19% drop in dollar bond issuance by non-U.S. sovereigns, totaling $86.2 billion in the first five months of the year. This marks the first decline in three years. Countries like Canada, Saudi Arabia, Israel, and Poland have significantly reduced their dollar bond issuance.
Simultaneously, global sovereigns' local currency bond issuance has surged to a five-year high of $326 billion. This trend is fueled by falling domestic interest rates as inflationary pressures ease in several countries, including India, Indonesia, and Thailand. India's local currency debt market has also matured, attracting more investors.
Brazil is considering issuing its first sovereign bonds in yuan, following President Lula da Silva's visit to Beijing. Brazil's dollar bond issuance has decreased by 44% this year. Saudi Arabia has also diversified its financing by raising 2.25 billion euros through a euro-denominated bond sale, including its first green bonds.
Experts note that while local currency issuances may be smaller and less liquid, they anticipate increased international investor interest in these markets over time. This trend signifies a notable shift in global financing strategies, with countries seeking to reduce their reliance on the U.S. dollar.