Governments and state entities are increasingly raising funds outside dollar-denominated bonds as the intensifying competition to raise capital increases the costs of issuing debt, a senior banker at Citi who deals with the sector said on Thursday.
Local currency debt markets, such as the Chinese renminbi, Australian dollar, Hong Kong dollar and Singapore dollar, are drawing interest from public and private issuers looking to diversify their funding, Citi’s global head of public sector group Stephanie von Friedeburg told Reuters.
“There is a limited pool of capital, and for the first time in many years, the public-sector sovereigns and the private corporates are competing for that capital. And it’s really being driven by sovereigns needing to borrow,” she said on the sidelines of the IMF and World Bank meetings in Bangkok.
Sovereign wealth funds are the world’s largest group of institutional investors. Globally, their assets totalled around $16.5 trillion as of this month, according to tracking data from Global SWF.
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Benchmark 10-year government bond yields in the world’s 10 largest developed economies have risen by an average of 81 basis points so far this year, credit rating agency Fitch said earlier this week.
Sovereigns and other public-sector issuers are increasingly looking to launch debt to fund infrastructure, energy security, defence and development priorities, von Friedeburg said, noting that stiffer competition for funds has emerged as private capital chases AI-driven opportunities.
Despite the shifts in sovereign portfolios and funding pressures, she said the US dollar will remain the dominant global reserve currency for the foreseeable future as no other market can match its depth and liquidity.
With yields rising in developed markets and large amounts of private capital locked into funding AI infrastructure, von Friedeburg said there was a crowding out of developing countries, which were already facing heavy debt-service burdens and zero fiscal space.
Unless innovative alternatives such as debt-for-development swaps were used, emerging markets would struggle to fund their essential energy, transport and digital futures, she added.
Von Friedeburg, who works with some of the world’s largest governments and quasi-state issuers, also said rising gold prices are prompting reserve managers to explore solutions such as hedging, liquidity management and borrowing against gold reserves.
(This story has been corrected to show issuers referred to are governments and state entities, not sovereign wealth funds, throughout the story and in the headline)
