Global Shift: Decline in Dollar-Denominated Debt as Local Currency Bonds Surge

In the first five months of 2025, global government issuance of U.S. dollar-denominated debt declined by 19% compared to the same period in 2024, totaling $86.2 billion. This marks the first decrease in three years. Concurrently, sovereign issuance of local currency bonds surged to a five-year high of $326 billion.

This shift reflects a strategic move by nations to mitigate exposure to rising U.S. yields, currency volatility, and concerns over U.S. fiscal stability. Countries such as Canada, Saudi Arabia, Israel, and Poland have significantly reduced their dollar bond issuance, while others, including India and Brazil, are bolstering local currency markets and exploring alternative currencies.

Historically, the U.S. dollar has been the dominant currency for global sovereign debt issuance. However, recent economic and geopolitical developments have prompted countries to reassess this reliance. The 19% decline in dollar-denominated debt issuance marks the first decrease in three years, signaling a notable shift in global financial strategies.

Country-Specific Actions:

• Canada: In March 2025, Canada issued a five-year US$3.5 billion global bond to bolster its foreign reserves. The transaction saw robust demand, with an order book exceeding US$13.9 billion, underscoring investor confidence in Canada's resilient economy and AAA credit ratings. (source)

• Saudi Arabia: The kingdom issued €2.25 billion in euro bonds, including green bonds, illustrating a strategic move away from dollar financing. (source)

• India: The inclusion of India's local currency bonds in global indices has attracted international investors, contributing to the growth of its local currency market. (source)

• Brazil: Considering yuan-denominated bonds following increased economic cooperation with China, reflecting a move towards alternative currencies. (source)

• Dominican Republic: In June 2024, the Dominican Republic issued a $3 billion triple-tranche bond that included a $750 million green bond tranche. The operation was complemented with a simultaneous repurchase of $1 billion of external bonds maturing in 2025. The local currency tranche was the largest ever Dominican peso deal and the largest order book in the country's history. (source)

Experts note that while local currency issuances tend to be smaller and less liquid, international interest in such markets is expected to grow over time. (source)

The decline in U.S. dollar-denominated sovereign debt issuance and the concurrent rise in local currency bonds signify a pivotal shift in global financial strategies. As nations seek to mitigate risks associated with U.S. economic policies and enhance their financial autonomy, this trend may reshape international debt markets and currency dynamics in the years to come.