At the IMF–World Bank meeting in Bangkok, officials and market participants said that governments and sovereign wealth funds are increasingly tapping bond markets denominated in currencies other than the US dollar, after competition for capital pushed up the cost of dollar-based debt.
Stephanie von Friedeburg, global head of Citi’s public sector group, told Reuters that interest is growing among both public and private issuers in markets for the Chinese yuan, the Australian dollar, the Hong Kong dollar and the Singapore dollar. She noted that available capital is limited, and for the first time in many years governments and private companies are directly competing for the same pools of funding.
Higher yields and rising public financing needs
According to Fitch, ten-year benchmark government bond yields in the world’s ten largest advanced economies have risen on average by 81 basis points so far this year. At the same time, governments and other public-sector issuers are increasing bond issuance to finance infrastructure, energy security, defence and development projects, adding to their borrowing needs.
Von Friedeburg said that this growing demand for credit is a key driver of the competition for investor capital, which in turn raises the cost of borrowing in dollars.
Private capital flows into AI, crowding out emerging markets
A significant proportion of private capital is being directed into investments tied to artificial intelligence, particularly AI infrastructure. That shift has a crowding-out effect on developing countries, many of which already face heavy debt-servicing burdens and virtually no fiscal headroom.
Von Friedeburg warned that without innovative approaches — for example debt-for-development swaps — emerging markets will struggle to fund energy, transport and digital projects.
Dollar dominance and reserve managers’ responses
Despite the move toward non-dollar issuance, Von Friedeburg emphasized that the US dollar is likely to retain its leading reserve-currency status in the foreseeable future, because no other market matches it in depth and liquidity.
Rising gold prices have also prompted central bank reserve managers to seek new solutions: engaging in hedging transactions, designing liquidity-management strategies, and in some cases taking loans secured against gold reserves.
Scale and implications
The article notes that sovereign wealth funds form one of the largest groups of institutional investors globally, with combined assets of about 16,500 billion US dollars this year.
The observations from the Bangkok meeting reflect parts of a broader market realignment: expanding issuance needs from public issuers, concentrated private investment into certain technology sectors, and consequent adjustments in currency and asset allocation across global bond markets.
This piece is not investment advice. An AI assistant contributed to the preparation of the article; the final content was edited and verified by our journalist.
