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Corporate inflation-indexed bonds in emerging market countries: recent trends and prospects

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Author Info

  • Kunzel, Peter

    ()
    (International Monetary Fund)

  • Medeiros, Carlos

    ()
    (International Monetary Fund)

  • Papaioannou, Michael

    ()
    (International Monetary Fund)

  • Zanforlin, Luisa

    ()
    (International Monetary Fund)

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    Abstract

    Inflation-indexed bonds represent a sizeable source of financing for corporations in emerging market countries, while they provide significant portfolio benefits to investors. In particular, inflation-indexed bonds can reduce borrowing costs and facilitate a maturity extension for a corporate issuer, while they can offer protection against inflation and thus guarantee stable real returns for investors. Despite these benefits, the issuance of inflation-indexed securities by corporations in emerging market countries has declined in recent years. This trend reflects primarily a decline in inflation in emerging market economies, but also other structural factors, including a relative illiquidity in corporate debt markets and an absence of government benchmark issues for inflation-indexed securities. This paper argues that even in an environment of declining inflation, the issuance of inflation-linked bonds maintains significant benefits both for issuers, such as possible lowering of funding costs, the ability to match debt payments with inflation- linked revenue streams, and the potential to increase the debt maturity, and for investors, such as portfolio diversification gains.

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    Bibliographic Info

    Article provided by Capco Institute in its journal Journal of Financial Transformation.

    Volume (Year): 20 (2007)
    Issue (Month): ()
    Pages: 69-79

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    Handle: RePEc:ris:jofitr:0925

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    Related research

    Keywords: corporate inflation-indexed bonds; emerging market countries; portfolio diversification; corporate inflation-linked derivatives;

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