Global Liquidity and External Bond Issuance in Emerging Markets and Developing Economies

44 Pages Posted: 20 Apr 2016

See all articles by Erik Feyen

Erik Feyen

World Bank - Finance & Markets Global Practice; Ahead Analytics Inc

Swati Ghosh

World Bank

Katie Kibuuka

World Bank

Subika Farazi

World Bank

Date Written: July 13, 2015

Abstract

Using the universe of all externally issued bonds by corporates and sovereigns in emerging and developing economies during 2000-14, this paper analyzes various issuance trends, including the unprecedented post-crisis surge. The paper focuses on external issuance at the country-industry and individual bond levels and finds that global factors matter greatly for emerging and developing economies issuance. A decrease in U.S. expected equity market (or interest rate) volatility, U.S. corporate credit spreads, and U.S. interbank funding costs and an increase in the Federal Reserve?s balance sheet (i) raise the odds that the monthly issuance volume of a country-industry is above its historical average; (ii) decrease individual bond yields and spreads; and (iii) raise bond maturities, after controlling for country pull factors, bond characteristics (for example, type of issuer, industry, and riskiness). Additionally, we document support that the risk-taking channel of exchange rate appreciation also operates for external bond issuance. Moreover, while the paper finds that country pull factors affect the impact of global factors, it does not find consistent evidence for this across the board. This result suggests that, during loose global funding conditions, flows are mostly driven by push factors and do not systematically discriminate between emerging and developing economies. Taken together, the findings suggest that although issuers might be able to benefit from benign international funding conditions, the large issuance volumes, currency risks, and high exposure to global factors could pose external and domestic challenges for policy makers, particularly when global cycles reverse.

Keywords: Capital Markets and Capital Flows, Securities Markets Policy & Regulation, Capital Flows

Suggested Citation

Feyen, Erik H. B. and Ghosh, Swati and Kibuuka, Katie and Farazi, Subika, Global Liquidity and External Bond Issuance in Emerging Markets and Developing Economies (July 13, 2015). World Bank Policy Research Working Paper No. 7363. Available at SSRN: https://ssrn.com/abstract=2630379

Erik H. B. Feyen (Contact Author)

World Bank - Finance & Markets Global Practice ( email )

1818 H Street, N.W.
Washington, DC 20433
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+1 (202) 458 2038 (Phone)
+1 (202) 522 3184 (Fax)

Ahead Analytics Inc ( email )

Washington, DC
United States

HOME PAGE: http://www.aheadanalytics.com

Swati Ghosh

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Katie Kibuuka

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Subika Farazi

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

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