Governments in Asia and Europe are significantly reducing their issuance of U.S. dollar-denominated debt, opting instead to raise funds in their local currencies. This shift comes in response to increasing U.S. yields, currency fluctuations, and growing concerns about the financial stability of the U.S. government. Recent data from Dealogic indicates that dollar bond issuance by non-U.S. sovereigns fell by 19%, totaling $86.2 billion in the first five months of 2025 compared to the same timeframe the previous year. This marks the first decline in three years.
Specifically, Canada and Saudi Arabia have seen substantial decreases in their dollar bond issuances, with declines of 31% and 29% to $10.9 billion and $11.9 billion, respectively. Additionally, Israel and Poland experienced significant drops of 37% and 31%, equating to $4.9 billion and $5.4 billion in bond issuance. Conversely, local currency bond issuance by global sovereigns hit a five-year high, reaching $326 billion so far this year. This decline in dollar-based borrowings comes amid a broader retreat by global investors from U.S. assets, which is fueled by concerns over tariffs and questions regarding the U.S.’s financial preeminence.
Johnny Chen, a portfolio manager at William Blair, noted that the increase in local currency issuances is largely driven by lower domestic interest rates as inflation ebbs, highlighting that countries like India, Indonesia, and Thailand have recently cut their benchmark rates. In an interesting development, Brazil is exploring the issuance of its first sovereign bonds in yuan, following a diplomatic visit to Beijing that included significant investment agreements. Meanwhile, Saudi Arabia has successfully issued 2.25 billion euros in bonds, marking its transition towards diversifying away from dollar-centric financing. Although challenges remain with smaller and less liquid local currency issues, experts believe that international interest in these markets is likely to grow over time.