Net issuance of U.S. dollar bonds in emerging market economies slowed in the third quarter. According to a report released Sunday by the Bank for International Settlements, non-bank net issuance in the 12 largest economies that account for the bulk of U.S. dollar debt fell to $5 billion in the third quarter, down from $41 billion in Q2 amid market turbulence in August.
The BIS notes that “dollar bonds issued by emerging market economy non-banks’ offshore affiliates have surged over the past six years,” but the Q3 slowdown is part of a larger trend in 2015. The report says growth has slowed relative to the prior two years in large part from the largest Brazilian borrower not issuing because of governance issues and Russian borrowers stepping back in light of international sanctions.
The BIS notes that until recently emerging market economies were rewarded by substituting dollar borrowing for domestic currency borrowing but “changing macroeconomic and financial conditions – in particular, a shift in relative funding costs that might emerge from a tightening of U.S. monetary policy” could put further pressure on dollar borrowing by emerging market economies.
