The entity has also issued Resolution No. 1 of 2026, amending its rulebook to incorporate provisions specific to bonds and sukuk, in addition to completing an integrated suite of operational and technical measures, including the introduction of a dedicated trading board for bonds and sukuk that is separate from equities.

“Trading sessions and price limits were structured to reflect the distinct nature of these instruments, differing from conventional equity trading mechanisms. Together, these measures represent a significant addition to the Kuwaiti capital market and constitute a pivotal step toward developing its investment environment and diversifying its instruments in line with international best practices,” said Boursa Kuwait.

“We are pleased to announce the completion of full operational and technical readiness for this phase, as system tests conducted by Boursa Kuwait and the capital market apparatus delivered successful results, confirming the trading infrastructure’s readiness. Boursa Kuwait is now fully equipped to receive listing applications and operate the bonds and sukuk trading platform, with instruments to be listed upon meeting the applicable regulatory requirements,” remarked the exchange’s CEO Mohammad Saud Al Osaimi.

Noting that investor confidence in Kuwait’s capital market is a trust the exchange is committed to upholding, Al Osaimi added, “What sets this phase apart is the introduction of new investment instruments at a time when the region is facing exceptional geopolitical challenges. This reflects the depth of investor confidence in Kuwait’s national economy and its capital market, underscoring the apparatus’s commitment to continued development despite these conditions.”

“We would also like to reassure all market participants that trading systems are operating at full efficiency, and that Boursa Kuwait is distinguished by a robust operational infrastructure that provides investors with the tools and environment needed to manage their portfolios with confidence,” he continued.

Resolution 38 establishes a comprehensive regulatory framework, covering the full lifecycle of bonds and sukuk in the Kuwaiti capital market, from listing and daily trading through to early redemption or maturity.

The new framework will further govern the listing of both domestic and foreign issuances, setting out ongoing obligations for issuers and obligors throughout the listing period and defining procedures for delisting and withdrawal, including mechanisms for the treatment of these instruments in relation to their exclusion from market indices.

The resolution’s regulatory amendments also align with five clear strategic objectives that reflect the long-term direction for the Kuwaiti capital market.

“These include aligning the Kuwaiti capital market’s regulatory framework with standards recognised in global capital markets, establishing a clear and structured approach to listing and trading that provides legal certainty for all stakeholders, and enhancing market liquidity through the introduction of a new class of tradable instruments. The amendments also aim to strengthen disclosure standards and transparency in a manner that serves investors’ interests and reinforces their confidence, while supporting greater diversification of investment instruments in the Kuwaiti market and reducing reliance on equities as the primary investment vehicle,” Boursa Kuwait added.

“For the first time ever, Kuwaiti and foreign companies can finance their operations and projects through the issuance of listed bonds or sukuk on Boursa Kuwait, benefiting from clear and viable financing advantages. The instruments allow issuers to secure funding at competitive costs compared to traditional bank borrowing and access a broader and more diversified investor base beyond conventional lenders,” it remarked.

Under the new framework, companies seeking listing in Boursa Kuwait must meet conditions designed to safeguard investor interests. These include obtaining a credit rating from a recognized rating agency, adhering to a minimum issuance value of no less than KD100,000 (USD 322,860) or its equivalent in foreign currencies, ensuring free tradability without restrictions and establishing a body to represent and protect the interests of bond or sukuk holders.

“Additionally, sukuk issuances must comply with the principles and rules of sharia,” Boursa Kuwait concluded.

The post Boursa Kuwait gets nod to launch bonds, sukuk platform appeared first on International Finance.

“Historically, regional DCM issuances have typically rebounded swiftly once tensions eased following previous geopolitical conflicts in the Middle East. However, the ultimate effect will depend on the scope and duration of the Iran war. While some yield widening is visible in GCC bonds and sukuk since the war began, there have not been market-wide selloffs,” the agency stated.

Before the conflict’s beginning, issuance activities in the Middle East were displaying strong investor appetite. While about 84% of Fitch-rated sukuk in the GCC countries were rated investment grade, 63.2% was in the ‘A’ category, while 90% of issuers were on Stable Outlooks. Most importantly, there were no defaults by the end of 2025.

“GCC issuances were strong at the start of 2026, with many entities aiming to benefit from favourable conditions ahead of the typical Ramadan slowdown. GCC debt capital market (DCM) outstanding reached USD1.2 trillion as of March 9, 2026, up 14% year on year, with 63% of issuance denominated in US dollars. Sukuk issuance rose to a record 41% share of GCC DCM volumes, with Saudi Arabia and the UAE making up the majority of GCC DCM outstanding, followed by Qatar, Bahrain, Kuwait and Oman. Sukuk in EMs rose to 16% of all dollar DCM issuance in 2025 (excluding China; 2024: 12%). Local-currency GCC sukuk and bonds continue to be issued, mainly by sovereigns,” Fitch remarked.

While funding needs and diversification priorities remain key focus areas for Gulf countries, governments and issuers are now seeking broader liquidity channels.

Fitch sees issuers planning their funding activities well in advance, particularly for large maturities, which will help limit immediate refinancing pressure.

“Despite heightened geopolitical challenges in recent years, GCC issuer activity has rebounded quickly once tensions eased, with market access broadly maintained for many issuers. However, the duration and scale of the conflict in the Middle East have already surpassed the 2025 Twelve-Day War, testing new levels of market uncertainty,” the agency noted.

MENA (Middle East and North Africa) sukuk continues to trade tighter than bonds originating in the region, reflecting sustained and broader demand, including from Islamic banks, with yield widening more pronounced among non-investment grade issuers. The yield-to-maturity (YTM) on the S&P Global High Yield Sukuk Index rose to 6.61% on 10th March 2026, up from 5.82% on 27th February (a 79bp increase).

“Similar periods of yield widening have occurred, particularly in times of heightened geopolitical or Sharia-related uncertainty. However, the current YTM movement remains below the peak levels recorded in earlier episodes,” Fitch concluded.

The post Middle East tensions: Fitch issues outlook for sukuk issuances appeared first on International Finance.

This outlook will coincide with the redemption of bonds, which are maturing and require repayment, averaging approximately 208 billion rand annually in the coming years. To meet these obligations, the Treasury plans fresh debt issuance, to adjust repayment schedules or implement deeper spending cuts.

The Treasury will continue with “bond switches,” allowing investors to exchange bonds nearing maturity for longer-term instruments. While this mitigates short-term repayment pressure, it does not reduce overall debt levels.

Investors have been forecasting reduced weekly bond auction sizes. The Treasury previously signalled cuts would only occur if lower issuance proves sustainable rather than temporary.

In terms of external borrowing, South Africa raised USD 2.6 billion of the projected USD 5.3 billion for 2025/26 from multilateral development banks. It will raise the balance of USD 2.7 billion in global markets.

“Additionally, the Treasury plans to leverage South Africa’s gold and foreign exchange account to ease future borrowing. The buffer stood at 364 billion rand by March 31, well above the target of 260 billion rand. After allocating 50 billion rand from the account earmarked for the current fiscal year, funds totalling 31 billion rand will be utilised in 2026/27 to curb borrowing requirements,” reported Reuters.

Meanwhile, in his Medium-Term Budget Policy Statement (MTBPS) speech, Finance Minister Enoch Godongwana stated that his country’s focus will now be on growing the economy faster and attracting the investment needed to create jobs and improve the lives of all South Africans.

“Two years ago, we committed to stabilising public debt in the current year and then begin to reduce it. Despite a challenging environment of persistently low economic growth, we are on track to achieve this goal. We are also committed to removing South Africa from the Financial Action Task Force grey list. We have delivered on this commitment in just two and a half years. This is thanks to collaboration across government departments, law enforcement agencies and the private sector. Exiting the grey list enhances South Africa’s attractiveness to investors and makes it easier to do business with us,” Godongwana said.

The above-mentioned achievements have helped the government to not only lower the bond yield curve, but also to reduce the risk premium for owning government bonds, resulting in the freefall of debt servicing costs. As per Godongwana, this will lead to an improvement in South Africa’s credit rating.

Foreign participation in domestic bond auctions has grown from 24.8% in April 2025 to 26.8% in September 2025. This increase was supported by lower global risk aversion and improved sovereign risk perceptions, bolstering demand and lowering yields. During this period, credit rating agencies reaffirmed South Africa’s sovereign ratings and outlook, citing progress on fiscal consolidation and stronger external balances.

This has already led to lower debt service costs as debt service costs in the current year will be 4.8 billion rand lower than estimated in the 2025 Budget, supported by lower interest rates, lower inflation and a stronger currency.

The post South Africa to rely on domestic bonds to refinance debt: Government appeared first on International Finance.

Historically known for its casinos, Macao is accelerating economic diversification by turning to modern finance, particularly its fast-growing bond market, as a strategic pillar of growth. Over the past few years, isolated financial initiatives have coalesced into a robust bond market that connects Macao with international capital flows.

Strategic expansion

Macao’s government prioritised “modern finance” in 2020 to address an unbalanced industrial structure overly reliant on gaming. By 2022, it formalised a diversification blueprint known as the “one plus four” strategy.

Under this plan, the “one” refers to Macao’s traditional integrated tourism and leisure industry, while the “four” denotes four new pillars: healthcare, modern financial services, high technology, and a cluster of industries spanning conventions, exhibitions, trade, culture, and sports. This policy shift signalled that finance, and specifically the bond market, would play a central role in Macao’s next chapter.

Today, the financial sector, led by banking and insurance, alongside bonds, funds, and other services, has grown into Macao’s second-largest industry. The city’s bond market journey began only in 2018, yet progress has been swift. By 2021, Macao had established a Central Securities Depository (CSD) system to facilitate bond trading and custody.

In recent years, the government has improved issuance mechanisms, expanded financial infrastructure, updated regulations, and strengthened collaboration with Mainland China and Hong Kong, all to support the bond market’s growth.

This groundwork has attracted major bond issuers. The Ministry of Finance of China, the Guangdong provincial government, and leading banks and corporations have floated bonds in Macao.

Notably, bonds in Macao are issued in multiple currencies: Chinese yuan, US dollars, Hong Kong dollars, and the local Macanese pataca. By 2024, the total value of publicly offered and listed bonds in Macao reached about $100 billion, a remarkable feat for a market that barely existed a few years ago.

The bond boom

As a leading commercial bank in the territory and the chair of the Securities and Funds Industry Association of Macao, ICBC (Macau) plays multiple roles in bond deals.

It serves as an issuer, an institutional investor, an underwriter, a clearing and settlement bank, an agent bank, and a trustee administrator, covering the entire bond market value chain. The bank also provides one-stop services for bonds from issuance to trading.

Over the past few years, ICBC (Macau) has spearheaded many of Macao’s key bond transactions. It has issued over $1 billion in bonds annually for four consecutive years, making it the most active and diversified bond issuer among local players. The bank has also pioneered various innovative offshore bond products, often with colourful nicknames.

These include “Kung Fu bonds,” “Dim Sum bonds,” “Lotus bonds,” “Pearl bonds,” and “Yulan bonds,” among others. Each term refers to a specific category of offshore bond tailored to different investor markets or currencies. By creating this multi-market, multi-product portfolio, ICBC (Macau) has helped put Macao on the map for global bond investors. Leveraging the advantage of its full banking license, the bank actively invests across various bond markets, further linking Macao’s capital market with the world.

Macao’s bond market evolution

As one of Macao’s leading banks, ICBC (Macau) has positioned itself at the heart of the bond market’s development, in line with the government’s push to diversify the city’s casino-heavy economy through modern finance.

The bank’s deep involvement is helping transform Macao from a one-industry town into a budding financial hub, with the total value of listed bonds in the city surging to around $100 billion by 2024.

ICBC (Macau)’s Macao headquartered building serves the entire bond market value chain, from issuance and underwriting to clearing and investment. As a major local institution, ICBC (Macau) is the chair of Macao’s Securities and Funds Industry Association, and it plays multiple roles across the bond market value chain.

The bank wears many hats. It acts as a bond issuer, an institutional investor buying bonds, an underwriter helping other entities issue debt, performs technical functions like clearing and settlement, and serves as an agency bank and trustee administrator for bond offerings.

This all-in-one participation has made ICBC (Macau) one of the bond market’s most pivotal players. Over the past few years, the bank has spearheaded many of Macao’s landmark bond deals and consistently led in issuance volume.

Since 2020, ICBC (Macau) has issued bonds in the local market for four consecutive years, raising more than MOP 8 billion (around $1 billion). That track record makes it the most active and diversified bond issuer among Macao’s banks.

In January 2025, for example, ICBC (Macau) launched a $250 million three-year bond as part of its global medium-term note programme. The notable deal was listed on Macao’s exchange (MOX) and was among the first to benefit from a new Hong Kong–Macao bond clearing link that opened the market to a wider pool of investors. ICBC (Macau) is steadily boosting the market’s scale and liquidity by issuing sizable bonds and attracting outside investors.

Beyond volume, ICBC (Macau) has also been a leader in innovation within the bond sector. It has pioneered a range of niche bond products with catchy nicknames that underscore Macao’s international connectivity. These include offshore renminbi bonds known as “Dim Sum bonds” (a term for RMB-denominated bonds issued outside Mainland China) and Macao’s very own “Lotus bonds,” the local label for RMB bonds issued in the territory.

The bank’s underwriting portfolio spans multiple markets and currencies, from “Kung Fu bonds” (international bonds by Chinese issuers) to “Pearl” and “Yulan” bonds, indicating a breadth of expertise in both Chinese and global bond markets. By bringing such products to Macao, ICBC (Macau) has expanded the city’s bond offerings beyond vanilla debt, giving issuers and investors more options and tying Macao’s market into regional trends.

All of this reinforces Macao’s ambitions to become a modern financial centre. ICBC (Macau)’s comprehensive involvement in the bond ecosystem has been instrumental in turning the government’s vision of economic diversification into reality. Each role the bank plays, whether helping a local firm issue its first bond, investing in a public infrastructure bond, or streamlining cross-border settlement, builds confidence in Macao’s financial infrastructure.

The bank’s support for innovative bonds, like green and “Belt and Road” themed issues, also signals that Macao can be a platform for financing projects far beyond its shores. In short, ICBC (Macau) is not only driving deals, it is helping to anchor Macao as a credible finance hub in the Greater Bay Area and beyond.

Unique advantages fuelling growth

Geographically, Macao serves as a strategic gateway between mainland China, Portuguese-speaking countries, and markets involved in China’s Belt and Road Initiative. The city enjoys free-port status and an independent customs regime, while being an integral part of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). In the context of China’s continued opening-up, this position gives Macao a prominent edge as a regional financial hub connecting East and West.

Equally important is Macao’s business-friendly financial environment. The city boasts abundant fiscal reserves and private wealth, and adheres to internationally recognised standards of confidentiality in finance. Tax rates are competitive, lower than those in many global financial centres, which attracts businesses and investors.

Macao’s financial regulators maintain an open, pragmatic stance that supports innovation while ensuring stability. Thanks to these factors, the banking sector in Macao is highly internationalised; by the end of 2024, international assets made up 83.4% of total banking assets in the territory. In other words, a large share of Macao’s banking business connects to overseas capital, reflecting the city’s global reach.

Supportive policy from the broader region also plays a key role. Macao is one of four core cities in the Greater Bay Area, a dynamic economic zone in southern China with a combined GDP of around $1.8 trillion. Being part of this region means Macao can tap into a vast market and diverse financial service needs nearby, which helps propel the growth of its nascent finance sector.

Furthermore, Macao’s deepening integration with its mainland neighbour, Hengqin (an island in Guangdong province), provides extra room and resources for development. A special Guangdong-Macao cooperation zone in Hengqin allows Macao’s financial industry to leverage Hengqin’s land, infrastructure, and client base while using Macao’s own global connections. As of the end of 2024, fund companies in this Hengqin cooperation zone managed around $600 billion in assets, highlighting the scale of opportunities being unlocked by regional integration.

Having successfully established a bond market “from zero to existence,” Macao is now looking to go “from existence to excellence,” as officials put it. The roadmap involves further opening and innovating to enhance the market’s competitiveness and cement Macao’s status as a modern finance hub. Key initiatives shaping Macao’s bond market future include making the market more liquid.

This means developing a more active secondary market for bonds and providing supporting services like better pricing (valuation), trading platforms, and funding options for investors. Embracing financial technology is part of this effort, as is introducing new investment products to keep the market dynamic. Strengthening these areas will enable investors to enter and exit positions more freely, which attracts greater participation.

Macao aims to broaden its international reach by deepening ties with mainland China and Portuguese-speaking countries. Given the city’s cultural and historical links, it’s uniquely positioned to bridge these markets. Officials are promoting cross-border collaboration, resource sharing, and complementary partnerships with institutions in these regions.

By integrating Macao’s strengths (such as its open market and bilingual heritage) with the vast resources of its partners, the goal is to create synergies that increase cross-border investment and financing. This would boost the scale and appeal of Macao’s bond market at home and abroad.

Macao is aligning its financial growth with global sustainability trends and fintech developments. The focus is on attracting green and sustainable bond issuers and investors, aligning with worldwide environmental finance initiatives.

Macao’s rapid progress in developing its bond market shows real determination to move beyond its reliance on casinos. The city has built a solid base for modern finance in just a few years, which is impressive. Macao could become a true financial hub if it continues to innovate, attract global investors, and strengthen ties with neighbouring regions. Its focus on sustainability and technology suggests a smart, forward-looking approach to long-term economic growth.

The post Bonds power Macao’s growth story appeared first on International Finance.

There’s a palpable mix of excitement and trepidation on the horizon, as investors pile into an asset they view as a haven amidst today’s turmoil. But with gold fever sweeping the markets, many are asking the following: What’s driving this boom, and could it all come crashing down?

A “perfect storm” of economic anxiety, geopolitical conflict, and shifts in monetary policy has burnished the yellow metal’s appeal. Fears of recession and inflation have grown, exacerbated by unpredictable policy moves, such as abrupt changes in US trade strategy, which rattled markets and weakened confidence in paper assets. Wars (whether trade or actual military conflicts) have further spooked investors and fuelled demand for the timeless safety of gold. In this climate of uncertainty, gold’s lustre as a store of value shines brightly once again.

Yet history teaches that what goes up can also come down. Previous gold booms, notably those in 1980 and 2011, were followed by painful corrections. So, is today’s rush for gold a prudent hedge or the makings of a bubble?

International Finance will examine the drivers of the current gold price boom, explore why gold is traditionally seen as a haven, consider the risks of investing amid the hype, weigh expert opinions on a potential bubble burst, and discuss strategies for navigating uncertainty in these volatile times.

Drivers behind gold’s record boom

Gold’s recent rally has been stunning in its speed and scale, and several key forces are behind it. Economic jitters and monetary policy shifts have played a leading role. Over the past year, investors have grown nervous about the global economy’s health.

In the United States, the world’s largest economy, flashing signs of a late-stage cycle include slowing growth, a softening labour market, and rising fears of an impending recession. Inflation, which spiked after the pandemic, remains a concern as well.

Gold thrives in such conditions because it is viewed as a hedge against inflation and currency weakness. Unlike cash, gold’s value cannot be eroded by central banks printing more money or by a surge in consumer prices.

Indeed, analysts point out that the cost of gold “tends to spike in times of high inflation and economic and geopolitical uncertainty.” As inflation fears rise, so does demand for the yellow metal, which is used to preserve purchasing power.

At the same time, monetary policy itself has boosted gold. After aggressively raising interest rates to combat inflation in 2022 and 2023, major central banks adopted a more dovish stance in 2024 and 2025. For example, the United States Federal Reserve halted its rate hikes and even began hinting at (or enacting) rate cuts as economic momentum faltered. Lower interest rates make non-yielding assets like gold more attractive than bonds or savings accounts, reducing the “opportunity cost” of holding gold.

It is no surprise, then, that gold’s price jumped in March 2025 immediately after the Fed signalled a pause, surging above $3,050/oz following a decision to hold rates steady. Expectations of global rate cuts have been a major tailwind.

“We reiterate our long gold recommendation due to the gradual boost from lower global interest rates, structurally higher central bank demand, and gold’s hedging benefits against geopolitical, financial, and recessionary risks,” Goldman Sachs noted.

With the prospect of easier money on the horizon, investors are preemptively moving into gold as a safeguard against any policy-driven currency debasement.

Geopolitical turmoil and uncertainty form the second key pillar of gold’s boom. In recent years, the world has witnessed a series of destabilising events, and gold often shines when confidence in governments or international stability wavers. One major factor has been the escalation of trade conflicts.

Under President Donald Trump, the United States unleashed waves of tariffs and trade threats, sparking a trade war that unsettled global supply chains and alliances. By early 2025, an aggressive new round of American tariffs on many of its main trading partners had investors on edge.

The recent surge in gold prices has closely mirrored the spike in global policy uncertainty, driven in part by fears of substantial tariffs and their potential inflationary consequences, as one analysis observed. Markets interpreted Trump’s erratic trade moves and even direct attacks on Federal Reserve independence as destabilising forces.

For instance, when President Trump lambasted Fed Chair Jerome Powell as a “major loser” on social media and demanded immediate rate cuts, it undermined confidence and sent shockwaves through financial markets. Stocks tumbled, the dollar’s value slipped, and gold promptly hit a fresh record high in the aftermath. This episode vividly demonstrated how political and policy drama can boost gold. When investors fear that policymakers might mismanage the economy or upend the status quo, many seek refuge in a tangible asset whose value is not at the mercy of any government’s decisions.

Beyond trade disputes, traditional geopolitical risks have also driven a flight to safety. Ongoing wars and international tensions, such as the conflict in Ukraine and flare-ups in the Middle East, have unnerved investors and spurred demand for gold, which is often viewed as crisis insurance.

Historical data show that gold’s price tends to rise during episodes of heightened geopolitical risk or military conflict, periods when stocks and even government bonds might fall. In such extreme moments of uncertainty (for example, the days after the 9/11 attacks or the outset of the COVID-19 pandemic), gold has proven its mettle by preserving value and rising in tandem with other havens like the American dollar. Today’s climate, marked by diplomatic rifts and security concerns, is a textbook case of investors hedging against worst-case scenarios.

Crucially, central banks around the world have themselves become major drivers of the gold rush, a relatively new dynamic that cannot be overlooked. Over the past few years, central banks, especially in emerging markets, have been voracious purchasers of gold, bolstering their reserves.

They have collectively bought more than 1,000 tonnes of gold each year since 2022, more than double the average annual purchases in the prior decade. In 2022, when Western nations froze Russia’s dollar reserves in response to the Ukraine invasion, many other central bankers had an epiphany.

“Reserve managers…realised, maybe my reserves aren’t safe either. What if I buy gold and hold it in my own vaults?” explained Daan Struyven, a commodities strategist at Goldman Sachs.

In other words, countries like China, India, Turkey, and Poland (all among the leading gold buyers) are hoarding gold to reduce reliance on the US dollar and the global dollar-centric financial system. The fear is that dollar assets can be “weaponised,” meaning turned into tools of sanction or pressure in times of geopolitical strife.

Gold, by contrast, is sovereign. Holding gold gives these countries an asset that no foreign government can seize or block, a form of financial security amid rising East-West tensions. This structural shift in central bank behaviour has added a steady, price-supporting demand for gold that many analysts say is “unlikely to reverse in the near term,” even if the pace moderates. In short, central banks are effectively building a golden buffer against geopolitical and economic shocks, and that trend has helped propel the market upward.

Finally, market sentiment and investor behaviour have amplified gold’s climb. Success begets success in financial markets, and the sight of gold repeatedly breaking records has triggered a classic case of FOMO, or fear of missing out. From small retail investors to large institutions, many are now scrambling to “get a piece of the golden pie,” as one bullion dealer observed.

Exchange-Traded Funds (ETFs) focused on gold have seen surging inflows, as they offer an easy way for people to buy into the rally without handling physical bars or coins. These investment vehicles have magnified demand. Large funds buying gold on behalf of investors further push up the price, which in turn attracts even more buyers in a virtuous (or vicious) cycle.

“Even a small move out of the big stock market or bond market means a big percentage increase in the much smaller gold market,” Struyven notes.

That is, the gold market is tiny relative to stocks or bonds, so it doesn’t take a huge reallocation of global capital towards gold to make its price jump dramatically. With market volatility elsewhere (stocks and bonds both had rocky periods recently), a modest shift in portfolios toward gold has an outsized effect on its valuation.

Additionally, some investors are seeking insurance against a scenario of stagflation, meaning simultaneous economic stagnation and high inflation, which is a nightmare for most assets but historically a favourable backdrop for gold.

As one commentary succinctly put it, with the risk of stagflation unsettling markets, many are “seeking refuge from both recession and inflation threats” in gold. In sum, a blend of fear and momentum has gripped the gold market, drawn ever more buyers, and fuelled the boom.

Corrections and pitfalls

With gold glittering at record highs and headlines touting its surge, it’s easy to get caught up in the excitement. However, investing in gold during a boom carries its own set of risks and potential pitfalls. For one, the possibility of a sharp price correction or even a bursting bubble looms large whenever any asset rises this far, this fast.

History provides a sobering precedent. The last time gold saw a mania comparable to today’s was in the late 1970s. Spooked by oil shocks and stagflation, investors drove gold to then-record heights in January 1980. But the euphoria didn’t last, as prices crashed violently thereafter. In 1980, gold plunged from a peak of $850/oz (about $2,684 in today’s dollars) to nearly half that value within just three months.

By mid-1981, it had decreased a staggering 65% from its peak. More recently, after gold reached another peak of around $1,900/oz in 2011, amid post-financial crisis turmoil and Eurozone fears, it also experienced a significant decline. Within four months, prices were 18% lower, and the slide continued for two years until gold was roughly 35% below its 2011 high. Investors who bought near those peaks and assumed gold “could only go up” nursed painful losses for years.

Could today’s rally meet a similar fate? It is certainly a risk to consider. Gold may feel solid and timeless, but its market price is volatile and driven by fickle sentiment as much as fundamentals.

A key danger is that many new investors are piling in due to hype or fear of missing out, rather than careful analysis. When an asset becomes a popular talking point at dinner tables and on social media, as gold has now in some circles, it often means a lot of momentum-driven money is at play.

These latecomer investors can quickly exit at the first sign of bad news, accelerating a downturn. Analysts caution that a bout of good news, such as easing geopolitical tensions or stronger economic data that reduces uncertainty, could prick the balloon. For example, one strategist noted that gold prices briefly fell 1.4% following news of a US-China tariff agreement that de-escalated trade tensions, highlighting the price’s sensitivity to shifts in the outlook. If we were to witness several positive developments, such as a lasting peace in a conflict or a strong global growth rebound, the very factors that drove gold prices up could reverse, potentially causing a significant decline in value.

Another risk factor is gold’s lack of yield or cash flow. Unlike a stock that pays dividends or a bond that yields interest, gold provides no regular income to its holder. Investors rely solely on price appreciation to earn a return.

In a booming gold market, that may not seem to matter, since the asset is climbing 40% in a year. But if the price momentum stalls or reverses, gold holders don’t have any interest or dividends to cushion their total returns. Furthermore, if interest rates were to rise again (for instance, if central banks tighten policy to fight inflation), gold could lose favour.

Higher interest rates increase the appeal of interest-bearing assets relative to zero-yield gold. This dynamic was one reason gold languished through much of the 1980s and 1990s when central banks under Paul Volcker and successors kept real interest rates high to rein in inflation. Indeed, an investor who bought gold in 1990 had to wait about 14 years before the price recovered to that level in real terms.

During such long flat stretches, holding gold can mean a significant opportunity cost. Money tied up in gold is money not invested in stocks, bonds, or other assets that might be growing or paying income. As The Independent noted in a recent analysis, these “missed opportunities” are a real drawback of over-allocating to gold. In other words, if you go all-in on gold and it does nothing (or declines) for a decade, you might regret not having put at least some of that money into assets that were flourishing during that time.

Investors must also consider practical challenges and costs associated with gold. Buying physical gold means dealing with storage, insurance, and security, which can be costly and inconvenient. While many people now opt for gold ETFs or other financial instruments to sidestep these issues, those come with their own fees and, in some cases, tax considerations.

Additionally, gold markets can be influenced by factors beyond the average investor’s control, such as central bank actions or fluctuations in jewellery demand in key markets like India and China. These factors can introduce volatility. And if the market turns, gold’s liquidity can also dry up; in a panic sell-off, finding buyers at the last high price is not a given.

All these points boil down to a simple warning that, even during a boom, investing in gold is not a one-way bet. The metal’s famed stability refers to its long-term retention of value, not short-term price stability.

As Susannah Streeter, head of money and markets at Hargreaves Lansdown, aptly put it, “Short-term speculating can backfire,” and those lured by gold’s record run should be careful not to put all their eggs in one (golden) basket.

Gold deserves respect as a haven, but chasing it at peak prices without regard for the downside risks is a recipe that could leave an investor feeling, in hindsight, that all that glittered was not gold.

The big question on everyone’s mind is: How long can this gold boom last? Opinions among experts are divided on whether the market is nearing a peak or just catching its breath before climbing further. Some observers indeed worry that gold has entered bubble territory and that a significant correction is inevitable.

Jon Mills, an industry expert at Morningstar, grabbed headlines recently by predicting that the price of gold could plunge to around $1,820/ oz in the next few years. Such a drop would cut gold’s value nearly in half from its recent highs, a dramatic reversal.

Mills argues that today’s high prices will eventually encourage greater supply, as miners increase production and more individuals sell or recycle old gold. At the same time, some of the short-term demand drivers are likely to diminish. In his scenario, supply and demand would rebalance. A greater flow of gold into the market, plus waning buying by central banks and investors once the current fears subside, could cause the price to retreat significantly.

It is worth noting that since making that bearish call, even Mills acknowledged reality has shifted a bit. Mining costs have risen, and inflation has stayed stubborn, leading him to revise his downside target upward slightly.

The core of the cautionary outlook is that if today’s “perfect storm” of drivers fades, gold could surrender much of its gains. Investors would do well to remember that no asset is immune to economic gravity. Caution, diversification, and a clear-eyed view of one’s goals are essential. Gold can be a prudent part of an uncertainty strategy, but it is not a guarantee against loss or a substitute for a balanced approach.

Ultimately, gold endures as a glittering reflection of our shared hopes and fears. Its boom today signals deep-seated worries about tomorrow. Whether or not the bubble bursts, the true value of gold will likely endure, but the journey could be volatile.

By understanding the forces at play and by hedging bets wisely, investors and the public can avoid turning a haven into fool’s gold. In these unpredictable times, that may be the most important investment advice to heed.

The post Is gold’s rise too good to last? appeared first on International Finance.

Traditional debt markets, though liquid, offer limited flexibility. Sovereign bond issuance can attract political scrutiny and rating downgrades, while multilateral tools like the EIB and EU-backed grant programmes are too slow to meet urgent timelines. When capital needs to move in months, not years, Europe’s toolkit falls short.

In response, a new financial playbook is emerging, led by structured liquidity tools that bypass legacy bottlenecks. These include Standby Letters of Credit (SBLCs), carbon-linked bonds, and tokenised infrastructure securities. Quietly, they are unlocking sovereign liquidity at speed and scale.

SBLCs: Trade finance reimagined for public infrastructure

SBLCs, traditionally used in trade, are now being adopted by sovereign-backed entities such as utilities and transportation authorities as the foundation for bridge financing. By monetising AA-rated SBLCs, these entities are covering up to 80% of capital expenditures in water, transport, and energy sectors, without issuing public debt.

These mechanisms enable discreet, fast deployment of funds for politically sensitive or strategically urgent projects. Unlike sovereign bonds, SBLC-backed facilities avoid market signalling issues and bypass the delays of public issuance.

Carbon-linked securities: Fast capital for verified reductions

Europe’s carbon market is advanced, but the financial instruments based on it often lag behind. Carbon-linked securities tied to actual emission reductions or monetised credits provide an alternative to slow-moving green bonds. These securities raise funds based on verified progress, not future commitments, giving sovereigns quicker, more credible access to climate capital.

As scrutiny of ESG frameworks increases, securities tied to actual carbon outcomes offer clarity, speed, and investor confidence.

Tokenised infrastructure: Liquidity without losing control

Governments in Central and Eastern Europe are now experimenting with tokenising infrastructure revenue, turning recurring cash flows like tolls or utility fees into fractional, tradable digital instruments. This approach offers sovereigns fast-track access to capital while retaining regulatory oversight and ownership.

Tokenised financing isn’t a crypto fad; it’s programmable liquidity aligned with sovereign interests.

Why this matters for Europe’s future

Europe faces an infrastructure funding gap of over €1 trillion by 2030. Traditional lenders, constrained by Basel IV and political risk aversion, are pulling back. Meanwhile, climate resilience, digital connectivity, and energy transition projects grow more urgent by the day.

Structured sovereign liquidity offers several key advantages. It provides speed, enabling capital to move in weeks rather than quarters, allowing for quicker response times in dynamic markets. It also creates optionality, offering more nuanced solutions when compared to the binary choices of debt or delay.

Additionally, it provides strategic control, reducing reliance on external lenders and minimising geopolitical risks. However, the pace of innovation in sovereign liquidity strategies is outpacing policy adaptation, highlighting a need for regulatory frameworks to catch up and ensure that financial solutions remain effective and sustainable in the long term.

These instruments are no longer niche. They are essential to bridging the divide between ambition and execution. However, they require standardised governance, eligibility criteria, and regulatory frameworks. Dismissing them risks sidelining one of Europe’s most powerful tools for mobilising infrastructure capital.

As Europe races to adapt its physical and economic architecture to a new era of competition and climate volatility, the question isn’t just what to build but how to fund it quickly, flexibly, and strategically.

Structured sovereign finance is no longer optional. It’s indispensable.

The post Europe’s capital crunch: Why sovereign liquidity needs fixing appeared first on International Finance.

Today, Türkiye presents a compelling case for investors who seek sustainable, policy-driven real returns in an emerging market undergoing disciplined macroeconomic rebalancing.

In 2024 and early 2025, Türkiye’s economic authorities made substantial progress in restoring price stability, supported by a combination of decisive monetary tightening and a renewed focus on external balance. The Central Bank of the Republic of Türkiye (CBRT) has reaffirmed its commitment to disinflation, taking bold steps to anchor expectations.

In April 2025, the CBRT raised its policy rate to 46%, emphasising that tight monetary conditions will be maintained until a sustained decline in inflation is achieved. Most importantly, this policy stance is backed by a strong preference for exchange rate stability, which plays a crucial role in containing inflation pass-through and rebuilding investor confidence. Market expectations reflect a steady decline in inflation over the coming quarters.

From an investor’s perspective, this macro shift is already translating into opportunities as local currency bonds are now offering positive real returns, especially as inflation expectations begin to decline and nominal yields remain elevated.

Exchange rate volatility has moderated, with options markets pricing in a narrower distribution of future exchange rates, which seems to be another sign of improving confidence. Also, Türkiye’s current account dynamics continue to strengthen, with the gold and energy-excluded balance in surplus and external financing conditions stabilising.

In this environment, short-term liquid funds have emerged as the most attractive vehicle for conservative investors. Given the current policy rate and stable money market yields, these funds provide high nominal returns with minimal duration risk, making them a preferred choice for capital preservation and real yield capture.

On the other end of the spectrum, long-term government bonds offer substantial upside potential, albeit with greater sensitivity to inflation and interest rate expectations. Today, long-dated bond yields in Türkiye remain well above not only current inflation, but also five- and ten-year forward inflation expectations, embedding a large inflation uncertainty premium. However, as disinflation materialises, this uncertainty premium will likely decline much faster than inflation itself, creating room for a significant re-pricing in long-term bond valuations.

TEB Asset Management believes the investment narrative in Türkiye is entering a new phase, one that is less about tactical gains from volatility and more about strategic positioning for real value.

While short-term instruments provide immediate real return, long-term bonds offer convexity and capital gain potential in a scenario where inflation and volatility decline faster than currently expected. A balanced approach, combining high-yielding liquid assets with select long-duration exposure, may prove especially effective in navigating this transition.

Türkiye’s macroeconomic rebalancing is still in progress, but recent trends, including improving inflation dynamics, a more stable currency outlook, and robust monetary policy credibility, provide a supportive backdrop for fixed-income strategies focused on real, sustainable returns.

In a world where real yield is increasingly scarce, Turkish assets offer a rare combination of high carry and policy alignment. For investors ready to look beyond the inflation headlines, this may be the right time to rediscover the strategic value of Türkiye’s fixed-income markets.

The post Beyond inflation: Searching for real yield in Turkish assets appeared first on International Finance.

To rein in inflation, which stood at 24.48% in January 2025, the Central Bank of Nigeria has been pursuing a contractionary monetary policy, an attempt to fend off inflation by reducing the money supply. The apex financial body maintained its benchmark lending rate at 27.50% in its latest meeting.

However, these policies have reduced the living standards of Nigerians. People are now paying higher prices for food, transportation, energy, health, and education. And this benchmark lending rate has also ensured yields and borrowing costs are rising in step with each round of monetary policy tightening, thereby establishing Governor Olayemi Cardoso’s reputation as a fiscal tightening hawk.

However, a rare sweet spot has been the country’s growing yield market, on which the African Banker recently reported: “At a 13 October Treasury bills auction by the central bank under its open market operations aimed at controlling liquidity, the regulator closed the deal at 24.3%. Dealers said the central bank chose that stop rate to keep the transaction to the ₦500 billion on offer and avoid oversubscription.”

Health of Nigerian yield market

On October 15, Treasury and Open Market Operations bills were trading with yields between 21% and 25.96%, with bills due in June 2025 leading the pack. Yields on federal government bonds have been slightly more subdued, ranging from 16.73% to 23.71%, according to data on the Financial Market Dealers Association’s FMDQ platform.

“Commercial papers, through which companies raise short-term financing for working capital and other uses, have led the way toward higher rates. Dufil Prima Foods, which manufactures the popular Indomie noodles brand, is among the first companies to sell commercial papers since the latest central bank rate increase. An offer repayable in April 2025, at 27%, opened on 10 October, with subscribers given a week to take up the offer. One of the first issuers to reach the 30% mark for yields is SKLD Integrated Services Ltd., with 270-day notes that closed on 4 September. A separate 180-day duration offer had an interest rate of 28%,” the African Banker stated.

The ₦5 billion, 270-day commercial papers offered by C&I Leasing two days after the Central Bank decision had a yield of 29%. The Lagos-based company, which is engaged in equipment leasing and logistic services in Nigeria and Ghana, closed the offer on 4 October.

Similarly, two tranches of commercial papers issued by investment bank DLM Capital Group for ₦5 billion, with durations of 180 days and 270 days, attracted yields of 26.9% and 29%, respectively. Both offers closed on 26 September, two days after the central bank raised its key rate.

When Dangote Cement, Africa’s largest manufacturer of building materials and one of Nigeria’s most profitable companies, sold 177- and 266-day commercial papers in May 2024 for ₦150 billion, the yield was 5% and 6%, respectively. However, Dangote Sugar, with less formidable credentials in the same group, raised two tranches a month earlier for a total of ₦42.79 billion at 23% for the shorter tenor and 25% for the longer tenor, indicating that less risky issuers can still raise funds more cheaply.

In December 2024, foreign portfolio investments (FPIs) in Nigerian equities reached their highest post-COVID level, as the investments totalled $284 million in the first nine months of the year. This marked a 19% appreciation from the $239.2 million recorded in the corresponding period in 2023, according to the Capital Importation Data for Q3 2024 provided by the National Bureau of Statistics (NBS).

The positive trend also represented the highest level of interest in Nigerian equities since the first nine months of 2020, when foreign portfolio investment (FPI) in the market reached approximately $737 million.

Comparatively, FPI stood at $168.5 million in 2021, declined to $51.7 million in 2022, and rebounded to $239.2 million in 2023. With an FPI of $84.7 million in Q3 2024, it also represented the highest foreign investment in Nigerian equities in the third quarter of the year since 2019.

Before COVID-19, Nigerian equities attracted significant interest from foreign portfolio investors, with FPI inflows reaching approximately $1.89 billion in 2019 and $2.36 billion in 2018. In Q1 2020, before the pandemic-triggered lockdown, FPI in equities stood at $639 million but plunged sharply to $53.2 million in Q2. The FPI in equities in Q3 2024 represented a 912% growth from the $8.4 million recorded in Q3 2023. However, it represented a 43.5% decline from the $149.9 million recorded in Q2 2024.

In 2024, Nigeria’s economy also exhibited characteristics of a “hot money” hub, with foreign portfolio investments accounting for approximately 61% of the country’s total capital importation in the first nine months of the year.

Short-term money market instruments accounted for $3.43 billion of the $4.38 billion in foreign portfolio investments recorded in the first nine months of 2024. In fact, in the same year, the NGX also provided a year-to-date return of 31.34%, underperforming the country’s inflation rate and 2023’s returns.

Despite the African country experiencing its highest inflation since 1996 and benchmark interest rates surging to a record 27.5%, the increased foreign interest in Nigerian equities can be attributed to significant improvements in the country’s foreign exchange system. The current foreign exchange system also offers greater fluidity, enabling investors to seamlessly invest in Nigerian stocks and repatriate their USD returns without the need for lobbying.

The Nigerian market has also offered appealing returns, with stocks like Seplat Energy, which is also listed on the London Stock Exchange (LSE), appreciating by 147% in 2024. Airtel Africa, which also got dual-listed, recorded a 14% return year-to-date, while Oando, listed on the Johannesburg Stock Exchange, posted a remarkable 499% return.

Have foreign investors found a winning formula?

The high yields on debt have proved to be an effective bait for foreign portfolio investors seeking higher returns. Foreign capital flows into Nigeria surged in the first half of 2024 to $5.98 billion, over double the $2.16 billion recorded for the same period in 2023, according to data provided by the National Bureau of Statistics.

With the first rate hike of 400 basis points in February 2024, there was an inadequate response time for investors, who brought in more than $1 billion by the end of March of that year. Inflows in Q2 reached $2.6 billion, more than double the figures for the preceding three months.

“At least $3.48 billion, or 58.2%, of the funds that came in between January and June of 2024 have gone to portfolio investments, a more-than-threefold increase from the $750 million spent on the same category of items during the comparable period last year. Out of the funds that went into portfolio investments, $2.68 billion went to money market instruments, $598 million went to bonds, and equities attracted $199 million. The money market investments targeted mainly Treasury bills, open-market-operations bills, and commercial papers,” the African Banker stated.

The naira kicked off 2025 with its strongest rally in 13 years, mirroring an early surge in 2024. Since December 2024, the naira has gained 9%, strengthening from ₦1,662/$ on December 2 to ₦1,509/$ on February 13, the biggest gain among African currencies, according to BusinessDay data.

In January 2025 alone, the currency appreciated 4% (₦63.14), hitting a seven-month high of ₦1,478.22/$. The last time such upward movement was seen was in 2012. Although the rally has cooled slightly in February, with the naira stabilising around ₦1,500/$, its strength in the parallel market has continued. It climbed to ₦1,545/$, up from ₦1,620/$ at the start of the month.

As per market insiders, the sharp reversal can be attributed to a decline in dollar supply and profit-taking by foreign investors. Many had entered the Nigerian market at ₦1,600/$, only to exit when the rate dropped to ₦1,300/$, locking in gains. Those who invested in Nigerian bonds, after the CBN adjusted rates to align with inflation, saw even higher returns upon exiting.

Analysts widely expect the currency to remain largely stable throughout 2025. Total foreign exchange inflows into the Nigerian autonomous foreign exchange market (NAFEM) increased by 53% to USD 4.7 billion at the end of January, up from USD 3.1 billion recorded in December 2024, according to data from the FMDQ.

Rate hike and a $500 million domestic bond

As Nigeria faces threats from severe inflation and exchange-rate pressures, the Tinubu administration has decided to stick to a tighter monetary policy rate while attracting foreign portfolio flows to help ease the pressure on the naira.

Under this approach, the African country sold its first foreign-currency domestic bond in September 2024, a $500 million offer that got a total of $900 million in subscriptions at 9.75%. Nigeria’s foreign reserves jumped 12.74% from the end of June 2024 to $39.12 billion as of 11 October, reversing the depletion of recent years.

Banks have emerged among the major beneficiaries of the current high-interest-rate regime. Guaranty Trust Holding, which operates Nigeria’s largest bank by market value, recently reported a threefold increase in net income for the first half of the year to ₦899.9 billion ($543.7 million). In all, the country’s top 12 banks combined recorded a 100% growth in profit before tax in the first six months compared with 2023.

Talking about the African country’s first-ever $500 million domestic dollar bond, whose issuance got oversubscribed to $900 million, it had local investors, pension funds, and the Nigerian diaspora as top subscribers and has provided a valuable source of hard currency amid ongoing dollar shortages and naira devaluation pressures. The “landmark transaction” also reflected Nigeria’s strategy to diversify funding sources and reduce reliance on international markets, where borrowing costs are higher.

The proceeds from the transaction are already supporting critical sectors of the economy, with plans to list the bond on local exchanges to enhance tradability. In addition to the annual interest rate of 9.75%, the $500 million bond is eligible for tax exemption for pension funds and other investors. The Central Bank of Nigeria has also granted it liquid asset status, meaning that banks can use it when calculating their liquidity ratios.

Market consensus described the bond pricing as highly attractive, with reports further suggesting the pricing was in alignment with the current yield of Nigeria’s Eurobond of equivalent tenor. Nigeria’s Eurobond of between three and five years currently yields between 9.662% and 10.03%; thus, the mid-point pricing of 9.75% was considered attractive.

A major advantage of the bond route pursued by Nigeria lies in the fact that the mechanism is the best alternative to borrowing to fund developmental projects and programmes, with no financial obligations on the government.

According to the Trust Deed for the bond, the Federal Government has pledged an irrevocable commitment that it shall keep fidelity to the nature of the bond as a dollar-based issuance, with both the principal and the coupon to be paid in the same currency.

Banks accelerate capital-raising further

Some five banks have rounded off preliminary documentation and approval processes to raise more than ₦1 trillion ($616.8 million) in the second wave of capital-raising as part of the ongoing banking recapitalisation exercise.

The banks—United Bank for Africa (UBA), Stanbic IBTC Holdings, Wema Bank, Premium Trust Bank, and Jaiz Bank—have reached advanced stages in their pre-offer processes, with the two largest banks within the cluster expected to headline the capital-raising this quarter.

Recently, another five banks raised more than ₦1.5 trillion ($925.2 million) in a momentous opening to the Central Bank of Nigeria’s directed programme. These institutions were Guaranty Trust Holding Company (GTCO), Access Holdings, Zenith Bank International, Fidelity Bank, and FCMB Group.

The African country’s Securities and Exchange Commission is already considering applications from the banks. While some six offers are undergoing the regulatory approval process, UBA, which has its shareholders’ approval for a multi-instrument capital-raising programme, is expected to start with a rights issue, under which the bank plans to raise more than ₦384 billion ($236.8 million).

According to reports, Stanbic IBTC Holdings, which had launched a ₦550 billion ($339.2 million) capital-raising process, has also reached an advanced stage for the first tranche of its multi-instrument capital-raising. The company is also headlining its equity-raising with a rights issue, a favourite method under the recapitalisation programme.

The holding company’s ₦550 billion ($339.2 million) capital-raising includes a rights issue of ₦150 billion ($92.5 million) and a ₦400 billion ($246.7 million) debt instrument. Shareholders of the company also authorised the board “to raise additional equity capital of up to ₦150 billion ($92.5 million) by way of a rights issue or offer for subscription on such terms, tranches, conditions and dates as may be determined by the directors.”

Wema Bank, with a national banking licence, is concluding its pre-issuance processes to raise ₦200 billion ($123.3 million) in new equity funds, in a bid to preserve the 79-year-old bank as a standalone entity post-recapitalisation. With a share capital and share premium of ₦15.13 billion ($9.33 million), the venture reportedly has one of the smallest starting points among Nigerian banks.

“In March 2024, the CBN released its review of the minimum capital requirements for commercial, merchant, and non-interest banks. It increased the minimum capital for commercial banks with an international affiliation, otherwise known as mega banks, to ₦500 billion ($308 million); for commercial banks with national authorisation, to ₦200 billion ($123.3 million); and for commercial banks with a regional licence, to ₦50 billion ($30.8 million). Other new thresholds apply to merchant banks at ₦50 billion ($30.84 million); non-interest banks with a national licence at ₦20 billion ($12.33 million); and any non-interest bank with a regional licence will now be required to have ₦10 billion ($6.16 million) minimum capital. The 24-month timeline for compliance ends on 31 March 2026,” African Banker concluded.

The post Nigeria’s costly fight for stability appeared first on International Finance.

In a term sheet examined by Reuters, senior unsecured fixed-rate bonds will be issued depending on market conditions.

Recently, China’s Ministry of Finance announced that, with State Council approval, it would issue bonds in Saudi Arabia for a maximum of USD 2 billion.

A plan worth six trillion yuan (USD 837 billion) has been approved by China to support its struggling economy by enabling local governments to exchange their hidden debt. This plan also reveals more stimulus measures to counteract a potentially unstable growth path associated with Republican Donald Trump’s imminent return to the White House.

The six trillion yuan debt limit will be made available over three years to assist regional governments in replacing their alleged “hidden debt,” Finance Minister Lan Fo’an announced at a press conference.

Risky local government financing platforms supported by cities or provinces typically owe this type of debt.

“Since the beginning of this year, affected by a variety of factors, the central and local fiscal revenues have fallen short of expectations,” he added.

The announcement came at the end of a five-day meeting of the Standing Committee of the National People’s Congress, China’s highest legislative body.

Chinese local governments are struggling with mountains of debt as a result of years of stringent COVID-19 pandemic controls and a real estate crisis that has depleted their coffers. Some cities can no longer provide basic services due to the severity of the issue, and default risk is increasing.

According to Lan, China had a massive hidden debt balance of 14.3 trillion yuan (USD 1.99 trillion) at the end of 2023. By 2028, officials hope to reduce that sum to 2.3 trillion yuan (USD 320 billion).

In the three months between July and September 2024, China’s GDP increased by just 4.6% over the same period last year. That was only a bit more than the 4.5% expansion forecast by the economists surveyed by Reuters.

The post China mandates banks for USD 2 billion bond issuance in Saudi Arabia appeared first on International Finance.

This analysis explores the renewed interest in SCDIs, evaluates their benefits and challenges, and considers the broader implications of their use in debt restructuring, drawing on recent examples from countries like Ukraine, Sri Lanka, and Zambia.

What Are State Contingent Debt Instruments?

State Contingent Debt Instruments (SCDIs) are a type of bond that links debt repayment conditions to specific economic or fiscal metrics. Unlike conventional bonds that offer a fixed interest rate and principal repayment schedule, SCDIs offer flexibility by tying repayments to variables like GDP growth, revenue from natural resources, or other economic performance indicators. SCDIs aim to balance the risk and reward for both borrowers and investors, offering potential gains when a country outperforms and relief when it underperforms.

The resurgence of SCDIs comes at a time when numerous countries are struggling with unsustainable debt burdens, worsened by global economic pressures, political instability, and the impact of COVID-19. The recent cases of Zambia, Ukraine, and Sri Lanka demonstrate both the potential of these instruments and the challenges they present.

Flexibility And Alignment With Economic Performance

SCDIs offer several advantages that make them an appealing tool for managing sovereign debt. Their primary advantage lies in their ability to align debt repayment obligations with a country’s economic performance. When a country’s economic conditions are favourable, payments can increase, thus rewarding investors for their risk.

Conversely, in times of economic distress, payments decrease, reducing pressure on the borrower. This flexibility can make SCDIs particularly useful for countries facing uncertain economic futures.

For instance, Zambia’s restructuring process incorporated SCDIs linked to the country’s economic performance, specifically its debt-carrying capacity, exports, and fiscal revenues. According to Zambia’s Ministry of Finance, these instruments provided immediate repayment relief while creating a conducive environment for economic development. This approach allowed Zambia to allocate resources toward essential public goods and services while meeting its debt obligations.

Ukraine also leveraged SCDIs during its wartime debt rework in August 2023, integrating GDP-linked bonds that incentivised investors with potential payouts if the economy grew faster than anticipated.

By using these flexible instruments, Ukraine managed to swiftly re-engage with bondholders, effectively bridging the gap between market expectations and economic realities. However, it should be noted that wartime economic forecasts are inherently unpredictable, which brings significant risks for both investors and the issuing country.

Complexity And Investor Reluctance

While SCDIs can be powerful tools for speeding up debt restructurings and providing much-needed economic relief, they are not without their challenges. The complexity of these instruments often makes them difficult for both issuers and investors to navigate. Investors may be deterred by the complicated nature of SCDIs, which can lead to increased borrowing costs for the issuing country.

One major issue with SCDIs is the potential for investor reluctance, especially regarding pricing and trading on secondary markets. History provides several cautionary tales. Argentina’s use of GDP-linked warrants in 2005 led to significant legal disputes, as hedge funds accused Buenos Aires of manipulating economic data to minimise payouts.

Similarly, Ukraine faced billions of dollars in obligations for GDP warrants that lacked a cap on investor payouts, creating substantial fiscal challenges. According to a report from the Bank for International Settlements (BIS), contingent instruments issued by Argentina, Greece, and Ukraine carried a “high and persistent” premium, ranging between 4.24% to 12.5% above standard bond yields, highlighting the risks perceived by investors.

A History Of Mixed Success

The concept of SCDIs is not new. Latin American countries first used these instruments in the form of Brady bonds during the late 1980s to manage the regional debt crisis. Since then, various countries have experimented with SCDIs, with mixed success.

Argentina’s GDP-linked warrants and Greece’s 2012 debt restructuring both included contingent instruments. While these instruments provided a reprieve from crippling debt obligations, they also introduced new complications in the form of legal disputes and elevated borrowing costs.

The mixed success of these historical examples reveals the importance of sound design and clear criteria for contingent debt instruments. The experiences of Argentina and Greece underscore the risks of flawed structuring, which can lead to disputes, market distrust, and adverse economic outcomes.

This historical context provides crucial lessons for countries like Sri Lanka and Zambia, which are looking to utilise SCDIs more robustly and transparently.

Sri Lanka’s Experiment With Macro-Linked Bonds

Sri Lanka’s recent decision to incorporate macro-linked bonds into its debt restructuring strategy is noteworthy. These bonds link debt repayments to performance indicators such as GDP growth, which allows the country to adjust both principal and interest payments based on economic performance.

Such an approach provides the Sri Lankan government with “breathing space” during periods of economic stress. This approach is still evolving, and its long-term success will largely depend on how well Sri Lanka’s economic growth aligns with IMF forecasts and how transparent the process is.

However, concerns have already been raised regarding the stronger-than-expected growth forecasts released by the Sri Lankan government. Analysts have questioned whether these optimistic projections could lead to an overestimation of the country’s ability to meet its repayment obligations, potentially resulting in fiscal strain if economic growth does not materialise as predicted.

Role Of International Institutions And Market Benchmarks

International financial institutions play a pivotal role in the success of SCDIs. The Global Sovereign Debt Roundtable—which brings together representatives from borrowing countries, private lenders, the World Bank, and the G20—has highlighted the potential of SCDIs to address the rising number of sovereign debt defaults. By fostering dialogue between all stakeholders, the Roundtable aims to create a framework that can make these complex instruments more accessible and beneficial.

One of the significant challenges that new SCDIs must overcome is ensuring their eligibility for inclusion in major financial benchmarks like JPMorgan’s Emerging Market Bond Index (EMBI). Instruments that fail to qualify for these benchmarks may struggle to attract investor interest, thereby driving up borrowing costs.

Zambia’s recently issued SCDI, linked to its debt carrying capacity, exports, and fiscal revenues, aims to meet benchmark eligibility to keep borrowing costs manageable. By relying on IMF assessments instead of government statistics, Zambia hopes to mitigate some of the risks associated with data manipulation, as seen in previous examples like Argentina.

While SCDIs offer an enticing option for countries in distress, they are also a double-edged sword. The experiences of Argentina and Ukraine serve as cautionary tales, highlighting the risks of flawed design, legal disputes, and increased borrowing costs.

For SCDIs to truly be effective, they must be well-designed, transparent, and aligned with internationally recognised benchmarks. The role of international financial institutions in fostering a supportive framework for SCDIs cannot be overstated, as their involvement will be critical in ensuring that these instruments serve both issuers and investors effectively.

As more countries turn to SCDIs to navigate their debt challenges, it will be crucial to learn from past experiences and refine the structure of these instruments. If successful, Sri Lanka’s experiment with macro-linked bonds could set a new standard for how countries approach sovereign debt restructuring in the 21st century. The future of SCDIs hinges on finding the right balance between risk and reward, ensuring that they provide the necessary relief to borrowers while maintaining the confidence of investors.

The post IF Insights: The renaissance of state contingent debt instruments appeared first on International Finance.