TAILIEUCHUNG - Currency choice in international bond issuance

The international debt securities market2 brings together borrowers and lenders with diverse risk profiles and risk appetites. This special feature investigates the determinants of the currency denomination of international debt issuance. Specifically, it examines the share of aggregate issuance of international bonds and notes that is denominated in selected currencies, and estimates the impact on these currency shares of a number of plausible factors. The international market is an attractive one for studying currency choice issues, because issuers are likely to be well known outside their national boundaries, and investors are likely to be comparatively well informed. As a result, asymmetric information regarding credit quality will be relatively low. The key. | Benjamin H Cohen 41 61 280 8421 Currency choice in international bond issuance1 Aggregate issuance of international bonds is found to be significantly higher in strong currencies than in weak ones. The mix of currencies is also found to be influenced by interest rate differentials with greater issuance in higher-yielding currencies and by the amount of home country issuance. Taken together the results suggest that both the investor s and the issuer s preferences determine currency choice in international bond issuance. JEL classification G110 G150 G320. The international debt securities market2 brings together borrowers and lenders with diverse risk profiles and risk appetites. This special feature investigates the determinants of the currency denomination of international debt issuance. Specifically it examines the share of aggregate issuance of international bonds and notes that is denominated in selected currencies and estimates the impact on these currency shares of a number of plausible factors. The international market is an attractive one for studying currency choice issues because issuers are likely to be well known outside their national boundaries and investors are likely to be comparatively well informed. As a result asymmetric information regarding credit quality will be relatively low. The key finding is that there is more issuance in a given currency when it is strong relative to historical averages and when long-term interest rates in that currency are high relative to those available in other major currencies. These findings hold even when controlling for demand for investable funds in that currency as proxied by the growth of investment or the level of home country issuance. The preferences of investors appear to play just as important a role as those of issuers in determining the terms and conditions of international bond issues. I am grateful to Claudio Borio Frank Packer Bob McCauley Jacob Gyntelberg and Már Gudmundsson for .

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