Currency Denomination and Borrowing Cost : Evidence from Global Bonds

Global bonds are debt securities placed in multiple markets with globally connected trading and clearing mechanisms. This paper studies the relation between global bond issuer’s currency denomination decisions and prevailing borrowing costs. The results show that issuers of these globally fungible debt instruments are responsive to deviations from both uncovered and covered interest parity conditions when selecting the denomination currency. Supranational institutions and borrowers from advanced economies exhibit a stronger tendency to engage in this type of opportunistic behavior than emerging economy borrowers. Furthermore, global bond borrowers appear to respond more strongly to deviations from covered interest parity after the 2008 global financial crisis