Why Issue Bonds Offshore?

55 Pages Posted: 15 Dec 2010

See all articles by Susan Black

Susan Black

Reserve Bank of Australia

Anella Munro

Reserve Bank of New Zealand

Date Written: December 2010


This paper asks why Asia-Pacific residents issue debt in offshore markets and considers the implications for domestic debt markets. We use unit record data for bond issuance by non-government residents of Australia, Hong Kong, Korea, Japan and Singapore to link the decision to issue offshore to potential benefits. The results suggest that residents of smaller markets issue bonds offshore to arbitrage price differentials; to access foreign investors; and to issue larger, lower-rated or longer-maturity bonds. These bond characteristics tend to be correlated with offshore bond market size. The results support the notions that (i) deviations from covered interest parity are actively arbitraged by residents of minor currency areas, as well as by internationally active borrowers, as established in the literature; and (ii) issuers benefit from the liquidity and diversification of larger "complete" offshore markets. Against the potential benefits to borrowers, we consider the risks for both borrowers and the domestic market, and lessons from the ongoing financial crisis such as the benefits of funding diversification.

Keywords: offshore bonds, interest rate parity, local currency debt

JEL Classification: G15, G14

Suggested Citation

Black, Susan and Munro, Anella Elizabeth, Why Issue Bonds Offshore? (December 2010). BIS Working Paper No. 334, Available at SSRN: https://ssrn.com/abstract=1725989 or http://dx.doi.org/10.2139/ssrn.1725989

Susan Black (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000

Anella Elizabeth Munro

Reserve Bank of New Zealand ( email )

2 The Terrace
P.O. Box 2498
Wellington, 6011
New Zealand

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