B. DIALOGUE. THE BOND MARKET

B. DIALOGUE

THE BOND MARKET

Foreigner: Financial markets are generally classified as money or capital markets and primary or secondary markets. Do you follow this classification?

Kazakh: Yes, we do. But structurally we divide our financial market into a hard-currency market, a bank credit market, debt and equity markets and the market of gold and precious metals.

F.: I see. My experience in Kazakhstan tells me that your investors prefer operations in the hard currency market to investing in the real sector of your economy.

K.: Yes, our capital markets are thin, weak and vulnerable.

F.: It's a pity, because the debt market, for one, is a powerful instrument of monetary policy. Many governments issue bonds to solve their financial problems and to cover budget deficits.

K.: And how is the international bond market performing this year?

F.: Volumes of issuance have been rather high, though fewer bonds have appeared from emerging markets of Eastern Europe.

K.: Investors are still viewing borrowers in emerging markets too risky, I suppose. Western sovereign borrowers are the main players in the market, aren't they?

F.: Well, yes, but many are trying to slow down their borrowing and reduce their national debt.

K.: This leaves room for other borrowers, right?

F.: Yes, supranational have diversified tremendously, both in their products and markets. Corporate borrowers are also very active.

K.: But after the crisis investors have become more cautious, haven't they?

F.: That's right. Credit ratings of borrowers have become much more important. Investors demand transparency and liquidity. Borrowers are finding it much harder and more expensive to raise sufficient funds on the international debt market.

K.: How has the introduction of the Euro affected the bond market?

F.: Some are thinking of Euro-denominated bond issues as the bond markets are moving away from the dollar in favour of the Euro. The competition is becoming keener.

K.: We are entering a new and turbulent phase in the debt markets. Many people believe that the worst is yet to come.

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