An update on local currency debt securities markets in emerging market
(Extract from pages 28-29 of BIS Quarterly Review, June 2008)
The Committee on the Global Financial System (CGFS) released a report on local currency debt markets in June 2007 (hereafter CGFS (2007)),1 and mandated the BIS to once a year update key statistics with a view to regularly publishing data on remaining and original maturity and on the structure of domestic debt instruments for a broader set of emerging market economies (EMEs). This box summarises the data reported for 2006 and 2007 against the backdrop of overall growth trends in local currency debt securities markets in EMEs; longer time series and detailed country data are available on the BIS website (www.bis.org/statistics/secstats.htm).
Overall, emerging local currency debt securities markets grew rapidly in the period 2005-07. Stocks of domestic debt securities, which proxy local currency debt outstanding, expanded,2 at an annual rate of 23% in current US dollar terms (Table A, last column). Growth rates excluding exchange rate effects on outstanding stocks have been somewhat lower, reflecting the appreciation of local currencies against the US dollar. The average growth based on these adjusted changes was 18%.
| Changes in stocks of domestic debt securities:1 all issuers |
|||||||
| In billions of US dollars and per cent |
|||||||
| |
2005 |
2006 |
2007 |
2007 stocks |
Annual growth, FX-adjusted2 | Annual growth at current exchange rates 2, 3 | |
| Asia |
406.8 |
432.5 |
653.1 |
3,908.9 |
19% |
23% |
|
| Latin America |
229.7 |
279.7 |
91.2 |
1,647.0 |
17% |
29% |
|
| Central Europe |
21.1 |
21.1 |
20.9 |
337.1 |
9% |
16% |
|
| Other EMEs |
28.9 |
21.5 |
15.0 |
381.4 |
7% |
8% |
|
| Total |
686.5 |
754.8 |
780.2 |
6,274.4 |
18% |
23% |
|
| This table updates Table C3 in CGFS (2007), and includes money market instruments. The detailed country data are provided on the BIS website (www.bis.org/statistics/secstats.htm). 1 Bonds, notes and money market instruments issued by residents and targeted at resident investors. The changes in stocks have been calculated in original local currencies by country and converted into US dollar amounts at quarterly average exchange rates, to arrive at net changes which exclude the effect of movements in the US dollar on the outstanding stock of debt. 2 Geometric average of 2005-07 growth rates. 3 In US dollar terms, at current exchange rates. Sources: National authorities; BIS. |
|||||||
Asia remains the region with the largest and, at an annual growth rate of 19% (FX-adjusted), fastest-growing bond markets. There were strong increases in China (34%) and India (27%) in 2007. Local debt in Asia was boosted in particular by greater debt securities issuance by central banks accumulating foreign exchange reserves. Outstanding short-term central bank sterilisation debt securities rose by a further $172 billion in China during 2006-07, compared with a $273 billion increase for 2000-05.3 The central banks of Thailand and Indonesia issued around $13 billion and $7 billion net respectively in 2007, while Korea repaid a net $9 billion of central bank bonds.
In Latin America, domestic debt outstanding rose 29% in current US dollar terms over the period 2005-07, but only 17% in constant dollar terms. In central Europe, exchange rate appreciation also accounted for a large part of the nominal increase in outstanding debt securities. Growth in local currency terms amounted to only about 9%.
There are signs that the structure of domestic bond markets (which deal in securities with a maturity of over one year) in EMEs is converging towards that of developed countries. The share of straight fixed rate debt has risen since 2000, especially in Latin America. At the same time, the share of floating rate debt has declined. For instance, EMEs in Asia have almost totally phased out floating rate debt, which in 2000 had still accounted for 8%. As a result, exposure to movements in short-term interest rates appears reduced in many countries.
Moreover, currency-linked debt has been phased out in a number of countries in Latin America, especially Brazil, as part of macroeconomic policies aimed at reducing vulnerability to external shocks. Consequently, currency mismatches, an exacerbating factor in many earlier crises, have been substantially reduced. Even so, some countries in the survey maintain a significant share of currency-linked debt, including Peru (although the share has fallen, from a high of 42% in 2000 to 14% in 2007) and Argentina (where that form of debt has recently increased slightly to a share of 23%). In Venezuela, the share of currency-linked debt has gone up sharply. Inflation-linked bonds have, however, increased in Latin America, from 13% in 2000 to 25% in 2007.
| Maturity of domestic central government debt outstanding¹ |
||||||
| Average original² and remaining maturity in years |
||||||
| |
2005 |
2006 |
2007 |
|||
| Original |
Remaining |
Original |
Remaining |
Original |
Remaining |
|
| Latin America |
7.5 |
3.9 |
13.7 |
4.0 |
13.6 |
4.4 |
| Of which: |
|
|
|
|
|
|
| Brazil |
... |
2.3 |
... |
2.6 |
... |
3.0 |
| Mexico |
... |
3.4 |
... |
4.4 |
... |
5.9 |
| Asia, larger economies |
10.1 |
7.0 |
11.2 |
6.9 |
10.9 |
7.1 |
| Of which: |
|
|
|
|
|
|
| India |
14.0 |
10.0 |
16.9 |
10.0 |
14.7 |
10.0 |
| Korea |
6.1 |
4.1 |
6.6 |
4.2 |
7.0 |
4.4 |
| Other Asia |
8.0 |
5.5 |
9.1 |
5.6 |
10.1 |
7.0 |
| Of which: |
|
|
|
|
|
|
| Indonesia |
7.6 |
7.6 |
11.5 |
7.1 |
13.3 |
12.7 |
| Malaysia |
8.6 |
5.0 |
8.4 |
5.2 |
10.0 |
5.4 |
| Central Europe |
6.6 |
4.0 |
7.4 |
4.4 |
8.1 |
4.6 |
| Of which: |
|
|
|
|
|
|
| Hungary |
... |
4.1 |
... |
4.3 |
... |
4.7 |
| Poland |
6.2 |
3.6 |
6.9 |
3.9 |
8.0 |
4.3 |
| Other |
7.9 |
4.4 |
8.3 |
4.4 |
8.2 |
4.0 |
| Of which: |
|
|
|
|
|
|
| Turkey |
4.3 |
2.1 |
4.7 |
2.4 |
4.9 |
2.0 |
| South Africa |
16.0 |
8.1 |
16.8 |
8.3 |
17.3 |
8.3 |
| Total |
8.8 |
5.0 |
10.1 |
5.1 |
10.1 |
5.3 |
| ¹ This table updates Table D4 in CGFS (2007). It includes bonds, notes and money market instruments. Regional totals are based on the countries listed in Table D4 and weighted by the corresponding amounts outstanding. ² These estimates should be regarded as indicative and may not be strictly comparable across countries. The detailed country data are available on the BIS website (www.bis.org/statistics/secstats.htm). | ||||||
| Sources: CGFS Working Group survey; BIS. | Table B | |||||
The gradual extension of the maturity of central government domestic debt has continued through a general lengthening of the residual maturity of fixed rate bonds (Table B). In Asia, a significant lengthening of residual maturity of Indonesian debt is particularly notable. There has been a further extension in the average residual maturity in the case of Brazil (to three years) and Mexico (to six years). However, the residual maturity of Turkey's debt has fallen to only two years.
1Financial stability and local currency bond markets", CGFS Publications, no 28, June 2007 (www.bis.org/publ/cgfs28.htm). 2 The data collected on the basis of the CGFS report include local currency issuance by non-residents. 3 CGFS (2007), Table D5.
