Sovereign funds to turn to non-dollar bonds amid AI-driven liquidity crunch, Citi banker says
TLT•Sovereign wealth funds are increasingly seeking funding outside dollar-denominated bonds as competition for capital raises issuance costs, a Citi banker said. Local-currency markets are drawing interest, while developed-market 10-year government bond yields have risen an average of 81 basis points this year.
1. Issuers seek other markets
Sovereign wealth funds are increasingly raising funds outside dollar-denominated bonds as competition for capital increases debt issuance costs, Citi global head of public sector group Stephanie von Friedeburg said. She said local-currency markets including the Chinese renminbi, Australian dollar, Hong Kong dollar and Singapore dollar are attracting public and private issuers seeking to diversify funding.
2. Capital competition intensifies
Von Friedeburg said sovereigns are competing with private companies for a limited pool of capital, with governments needing to borrow to fund infrastructure, energy security, defence and development priorities. Private capital chasing AI-driven opportunities is contributing to pressure on funding, she said. Fitch said benchmark 10-year government bond yields in the 10 largest developed economies rose an average of 81 basis points so far this year.
3. Developing markets face strain
Sovereign wealth funds held around $16.5 trillion in assets globally as of this month, according to Global SWF tracking data. Von Friedeburg said developing countries face crowding out, heavy debt-service burdens and zero fiscal space, and could struggle to fund essential energy, transport and digital needs without alternatives such as debt-for-development swaps. She said the dollar would remain the dominant reserve currency for the foreseeable future, while rising gold prices have prompted reserve managers to explore hedging, liquidity management and borrowing against gold reserves.
