First-Time International Bond Issuance—New Opportunities and Emerging Risks

IMF Working Papers, July 18, 2014

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International bond issuance by debut issuers has risen in recent years.
The uptick was a result of both demand and supply factors.
Demand-side factors: the search for yield and demand for portfolio diversification have resulted in demand-driven easy financing conditions.
Supply-side factors: rising financing needs for many debut issuers, reduced access to concessional financing, relatively undeveloped domestic markets, and a favorable interest rate environment have made international bonds an attractive financing alternative for many countries.
Typical features of these international bonds: denominated in hard currencies, large volumes, and a bullet structure.
Increased exposures: exchange rate risk and refinancing risk have increased for debut issuers.
Implication: risk-mitigating policy actions are needed to prepare for redemption, support debt sustainability, and secure adequate debt management capacity.

Debut international bond issuance has increased, driven by:
- Search for yield and portfolio diversification on the investor side.
- Rising financing needs, reduced concessional financing, undeveloped domestic markets, and favorable interest rates on the issuer side.
Characteristics of issuance that affect risk:
- Denomination in hard currencies.
- Large issuance volumes.
- Bullet repayment structures.
Resulting elevated risks:
- Exchange rate risk.
- Refinancing risk.

Implement risk-mitigating policy actions to:
- Prepare for redemption events.
- Support debt sustainability.
- Secure adequate debt management capacity.