Latin American Capital Markets

CHAPTER 10Developing Bond Markets:A Comprehensive ViewClemente del ValleBond markets provide the means to fulfill mid- and long-term funding needs. Developedbond markets help to reduce financial risks in the overall economy, provide thegovernment with a noninflationary source of finance, create a well-balanced financialenvironment, and promote economic growth. Due to the importance of these markets,governments must take the lead in developing them by creating a domestic governmentsecurities market and providing an adequate framework for developing corporatebond markets. Indeed, government bond markets are the foundation fordomestic bond markets.From an inter-American perspective, the level of bond market developmentvaries across countries, which can be categorized in three groups.The first one, thedeveloped group, includes Canada and the United States; both countries have welldevelopedcapital and bond markets where the government obtains all its fundingneeds via the issuance of fixed-rate and local-denominated currency bonds. Second,the developing group includes Argentina, Brazil, Chile, Colombia, and Mexico; thesecountries have achieved substantial progress in developing bond markets, especiallygovernment securities markets, but the process is far from complete.Third, the predevelopinggroup includes the rest of the Latin American countries, which are mostlysmall economies where the size of the financial system does not support the infrastructurerequired to develop a bond market or countries that have not yet begunthe process of developing a bond market. Table 10-1 shows the relative size of thegovernment securities market with respect to the domestic and international bondmarkets in selected developed and emerging countries.Government bond markets form the base of the entire bond market. Table10-1 also shows that most of the developed countries fund their financial needs intheir domestic markets, while Latin American countries require access to internationalCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub