Sovereign funds to turn to non-dollar bonds amid AI-driven liquidity crunch, Citi banker says
C•Sovereign wealth funds are increasingly raising money outside dollar-denominated bonds as public-sector borrowers compete with private companies for capital, a Citi banker said. She cited interest in local-currency debt markets and said global sovereign wealth fund assets total about $16.5 trillion.
1. Shift to local currencies
Sovereign wealth funds are increasingly looking beyond dollar-denominated bonds to raise funds as competition for capital drives up debt-issuance costs, Citi global head of public sector group Stephanie von Friedeburg said. She said issuers are showing interest in debt markets denominated in Chinese renminbi, Australian dollars, Hong Kong dollars and Singapore dollars.
2. Capital competition intensifies
Public-sector borrowers are seeking funds for infrastructure, energy security, defence and development as private capital pursues AI-related opportunities, von Friedeburg said. Benchmark 10-year government bond yields in the 10 largest developed economies have risen by an average of 81 basis points this year, Fitch said earlier this week.
3. Dollar remains dominant
Von Friedeburg said the US dollar would remain the dominant global reserve currency for the foreseeable future, citing the depth and liquidity of its market. She warned that rising yields and capital committed to AI infrastructure are crowding out developing countries, and said rising gold prices have led reserve managers to explore hedging, liquidity management and borrowing against gold reserves.
