U.S. and Hong Kong (2007)

The Federal Reserve Board

Remarks by Governor Randall S. Kroszner
At the Center for Financial Stability (CEF), Buenos Aires, Argentina
May 16, 2007

Globalization and Capital Markets: Implications for Inflation and the Yield Curve

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At the same time that maturities have been extended, bond yields in the domestic currencies of emerging-market countries have also declined. It is perhaps not surprising that, given the high rates of saving and generally high level of development in their economies, the governments of Hong Kong and Korea can borrow at levels close to those in the advanced economies. More notable, however, is that the Mexican government can borrow in pesos at a thirty-year maturity at roughly 8 percent. Although Mexico is perhaps the most striking example, it is not alone. Other middle-income emerging-market countries with single-digit yields on fixed-rate ten-year bonds in the domestic currency include Chile, Colombia, Malaysia, Russia, South Africa, and Thailand, to name but a few. The computation of forward rates for most of these countries is difficult because of the relative sparseness of the maturity distribution, but for those countries in which five-year forward rates can be computed, they have been declining and have reached very low levels in the past year or so.

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