Money-market

As well as bonds, which have maturities of up to 30 years, and medium term notes, with maturities of 1–5 years, short-term instruments are also traded in the international markets. Commercial paper, sometimes referred to as euro-commercial paper, is debt with a maturity of less than 270 days, issued by corporate borrowers. There is also a lively international market in other short-term paper, sometimes called short term euro notes. These are mainly trade able bank deposits, similar to  certificates of deposit, and government securities maturing within one year. Demand for international money-market instruments, modest until recently, exploded in 1999 with the adoption of the single European currency, then fell as low long-term rates made issuance of long-dated bonds more attractive. Historically, the majority of international money-market instruments have been traded in US dollars, with yen, Swiss francs, pounds sterling, d-marks and Hong Kong dollars also being used significantly. Since 2002, however, the euro has vied with the dollar as the main currency of issuance. In comparison with domestic money markets, trading in international money-market instruments remains small. In 2004, for example, some $498 billion in commercial paper and $178 billion of other short term securities were issued in domestic markets around the world. This was ten times the net issuance of commercial paper in the international markets. In some years, the amount of other short-term securities outstanding in international markets actually declines.

The issuers

As many aspects of the international markets are unregulated, there are no restrictions as to who may issue bonds. However, investors generally require that issuers obtain ratings from credit-rating agencies, just as they do with most domestic issues of bonds and commercial paper. There is a considerable market in bonds that are rated below investment grade. This is a significant attraction for companies in countries where there is no domestic market for below-investment-grade bonds. Entities based in the United States normally make up the most important group of issuers. In 2004, however, the UK was the largest country of issuance, as extremely low US interest rates encouraged US companies to fund themselves in the domestic market. However, companies and governments in many different countries turn to the international markets for financing. The biggest issuers of international debt securities include the Republic of Italy, the World Bank, leading banks and telecommunications companies, the governments of Denmark and Sweden, and the European Investment Bank, an arm of the European Union. It lists the countries whose corporations and governments are the largest borrowers in the international markets.

During the 1990s many borrowers in emerging economies entered the international debt markets for the first time. Previously, both firms and governments in less advanced economies had raised capital mainly through bank borrowings, which typically have higher interest rates and shorter terms than bonds. After years of inflation, stabilisation programmes and other economic reforms made countries such as Mexico and Argentina more attractive to foreign investors, and relaxation of financial regulations has permitted firms in these countries to sell bonds abroad more readily. Typically, corporations from emerging-market countries succeed in selling bonds internationally only after the national government has obtained ratings from credit-rating agencies and completed a sovereign bond issue. Both government and corporate issuers in these countries typically break into the market with bonds maturing in as little as two or three years, but they are able to issue securities with longer maturities as they become better known to investors.

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