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

Peter Kunzel (), Carlos Medeiros (), Michael Papaioannou and Luisa Zanforlin
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Peter Kunzel: International Monetary Fund, Postal: 700 19th Street, NW, Washington, DC 20431, USA
Carlos Medeiros: International Monetary Fund, Postal: 700 19th Street, NW, Washington, DC 20431, USA

Journal of Financial Transformation, 2007, vol. 20, 69-79

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.

Keywords: corporate inflation-indexed bonds; emerging market countries; portfolio diversification; corporate inflation-linked derivatives (search for similar items in EconPapers)
JEL-codes: G11 G32 O16 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:0925

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