Why Are More Sovereigns Issuing in Euros? : Choosing between USD and EUR-Denominated Bonds
This paper presents and discusses the arguments offered by several sovereigns that have joined a trend starting in 2013 whereby sovereign and corporate issuers, especially in Latin America, have gradually replaced a portion of the funding raised in...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/140681517344601798/Why-are-more-sovereigns-issuing-in-Euros-Choosing-between-USD-and-EUR-denominated-bonds http://hdl.handle.net/10986/29289 |
| Summary: | This paper presents and discusses the
arguments offered by several sovereigns that have joined a
trend starting in 2013 whereby sovereign and corporate
issuers, especially in Latin America, have gradually
replaced a portion of the funding raised in U.S. dollars
with euros. The trend seems to respond to the divergent
monetary policies followed by the U.S. Federal Reserve Board
and the European Central Bank. The selected country cases
state strategic and tactical arguments for increasing their
issuance in euros. The strategic reasons relate to internal
currency benchmarks and their rationale. In some cases, such
substitution is supported by the argument that further
diversification in the investor base was needed. This
argument was reinforced by the relatively tight conditions
in the U.S. dollar market. Tactical arguments refer to the
need to open the market to the private sector and raise
funding in euros, or the need to access new investors as a
preliminary step to attract them to the domestic market.
Several countries also admit that the optical effect of
lower coupons was a relevant consideration. This paper
highlights that it is important that sovereigns avoid making
decisions by comparing nominal coupons in both currencies.
More important, a formal debt management strategy, including
a target for the currency composition, should guide debt
managers. Without a strategy, the debt manager cannot tell
how the issuance in a particular currency affects the
exposure of the debt portfolio to foreign currency risk and
helps or not in achieving the debt management objectives. |
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