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Less foreign borrowing, longer bonds offset rise in emerging debt levels - BIS

Reuters  |  LONDON 

By Sujata Rao

(Reuters) - A large-scale shift towards domestically issued and longer-dated bonds in markets has helped build resilience to external shocks despite the increase in overall levels, the for International Settlements said.

The BIS, an umbrella body for global central banks, has warned in the past that developing world risks were entering a new crisis because of a build-up in levels, especially in China. But its latest report found that changes in the composition of were a mitigating factor.

"Borrowing is mostly done in local currencies, at longer maturities and at fixed rates. Taken together, these trends should help strengthen public finance sustainability by reducing currency mismatches and rollover risks," the wrote.

Its quarterly report released on Sunday said market government stood at $11.1 trillion, having doubled since end-2007. Public as a share of gross domestic product had risen to 51 percent, 10 percentage points above end-2007 levels.

But only 14 percent of the outstanding of 23 of the big developing countries was in foreign currency, its data showed, down from 32 percent at the end of 2001.

While foreign borrowing still made up about a third of the total in some countries such as Saudi Arabia, Turkey and Poland, such issuance has broadly declined.

"The fall in the share of FX-linked in the early-2000s may have helped shield economies from the global market turbulence of the 2007-09 crisis and its aftermath," the study added.

The also noted that bond tenors had risen steadily across markets, with an average maturity of 7.7 years for its sample set of 23 countries. This is only slightly below the average of eight years in developed countries.

It cited Mexico and South Africa as examples of countries that had extended average maturity to eight and 16 years respectively - well above many advanced nations.

This is not entirely without risk, however, the warned.

Longer maturities mean higher global bond yields - possibly as developed nations exit years of super-easy credit policies - "could have a greater impact than previously on the market value of debt, potentially increasing rollover risks and other adverse feedback mechanisms," the report added.

That is because interest rate rises tend to fuel a bigger drop in the price of longer-dated bonds than in those with shorter maturities.

(Reporting by Sujata Rao; Editing by Susan Fenton)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Sun, September 17 2017. 21:52 IST
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