Governments in Asia and Europe are raising far less debt in U.S. dollars than usual, preferring to issue at home as they avoid exposure to rising U.S. yields, currency volatility and broader concerns about U.S. government finances.
According to Dealogic data, issuance of dollar bonds by non-U.S. sovereigns dropped 19 per cent to $86.2 billion in the first five months of this year compared with the same period last year, marking the first decline in three years.
The January-May dollar bond issuance by the governments of Canada and Saudi Arabia fell 31 per cent and 29 per cent to $10.9 billion and $11.9 billion, respectively, while issuance by Israel and Poland declined 37 per cent and 31 per cent to $4.9 billion and $5.4 billion.
At the same time, Dealogic data showed global sovereigns’ local currency bond issuance had climbed to a five-year high of $326 billion so far this year.
This drop in dollar bond issuance comes at a time when global investors are pulling back from U.S. assets, partly in response to tariffs and as they question U.S. financial dominance and safety.
Johnny Chen, portfolio manager at William Blair’s emerging markets debt team, said the rise in local currency issuance is largely driven by falling domestic interest rates as inflationary pressures ebb, noting that India, Indonesia and Thailand have all cut their benchmark interest rates this year.
“In India’s case, the local currency debt market has also matured further with the inclusion of Indian local currency debt in global bond indices. This development has likely expanded the investor base, prompting more local currency issuance in 2025,” he said.
Brazil is considering issuing its first sovereign bonds in yuan, two government sources said, after President Luiz Inacio Lula da Silva’s visit to Beijing concluded with a wave of Chinese investment announcements and a currency swap agreement.
Brazil’s sovereign U.S. dollar bond issuance has dropped 44 per cent to $2.4 billion this year, data showed.
Saudi Arabia raised 2.25 billion euros ($2.36 billion) through a euro-denominated bond sale, including its first tranche of so-called green bonds, as part of its global medium-term note program, aligning with its strategy to diversify away from dollar-linked financing.
“The challenge with the onshore local currency is that those issuances tend to be much smaller, they’re less liquid,” said Kenneth Orchard, head of international fixed income at T. Rowe Price, based in London.”But we think over time there are going to be more international investors in those markets.”
(Reporting By Patturaja Murugaboopathy in Bengaluru and Jiaxing Li in Hong Kong; Additional reporting by Gaurav Dogra in Bengaluru; Editing by Hugh Lawson)
