EM corporations’ US dollar-denominated external debt has risen substantially over the past decade, from US$0.8 trillion at the end of 2004 to US$3.1 trillion in mid 2015 (Graph 1).1 An increasing share of this US dollar-denominated debt has been in the form of bonds rather than foreign bank loans, with bonds now accounting for 40 per cent of the outstanding debt compared with 25 per cent a decade earlier. US dollar credit is also sometimes extended by local banks, although this typically comprises a small proportion of their total lending.
Some countries issue sovereign debt in USD so there would be a cost for redemption and interest payments. Considering these types of loans would have a higher interest rate than US Bills the component could be quite large.
Also remember that increased USD means cheaper imports to the US and currency devaluations everywhere else. Only countries that peg their rates will suffer.
If rates rise next week I believe the market reaction, which has been greatly underestimated, could create gross instability. We live in a domino financial world.
