Global Sovereigns Shift from Dollar Bonds Amid Yield Volatility

In the first five months of 2025, non-U.S. sovereigns reduced their issuance of U.S. dollar-denominated bonds by 19%, totaling $86.2 billion—the first decline in three years. Countries such as Canada, Saudi Arabia, Israel, and Poland experienced declines ranging from 29% to 37%. This trend is attributed to efforts to avoid exposure to rising U.S. yields, currency volatility, and concerns over U.S. fiscal stability.

Conversely, global sovereign issuance of local currency bonds has increased, reaching a five-year high of $326 billion. This shift is driven by falling domestic interest rates in countries like India, Indonesia, and Thailand. India’s local currency market has also grown due to its inclusion in global bond indices.

Brazil is considering yuan-denominated bonds following increased economic cooperation with China. Saudi Arabia issued €2.25 billion in euro bonds, including green bonds, illustrating a strategic move away from dollar financing.

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.

The U.S. dollar's recent volatility, notably its decline alongside equities in April 2025, has unsettled its status as a safe-haven asset. This has prompted global investors to reconsider their dollar exposure.

Bond markets across major economies are showing increasing resistance to ongoing government borrowing without sufficient returns, signaling growing investor unease.

As the U.S. dollar loses its status as a universal safe haven, the EU has a unique opportunity to position the euro as a global reserve currency.