Emerging Markets Pivot from Dollar Debt Amid Rising U.S. Rates

September 2025 | Global Finance Insight Emerging market issuers in countries like Kenya, Sri Lanka, Panama, and Colombia are increasingly stepping away from dollar-denominated borrowing. Facing elevated U.S. Treasury yields, these nations are pivoting toward alternate currencies such as the renminbi and Swiss franc to secure cheaper funding. This shift is facilitated by contracts outlined under China’s Belt and Road Initiative, enabling smoother access to renminbi bonds. Panama, for instance, has already secured $2.4 billion in Swiss franc loans, yielding over $200 million in immediate borrowing savings, while Colombia is actively evaluating similar refinancing strategies. Still, analysts caution that this trend may be a short-term patch rather than a systemic shift—currency exposure risks remain significant, necessitating strong FX hedging frameworks. From a trading perspective, these developments create opportunities in currency hedges, emerging-market bond ETFs, and credit instruments tied to renminbi or Swiss franc issuance. Regular updates on issuance sizes, currency splits, and investor demand could offer early signals ahead of broader capital flow adjustments. Policymakers and international lenders should also keep a close watch: if sustained, this debt realignment could affect cross-border lending patterns, demand for U.S. dollars, and sovereign credit dynamics, especially in fragile economies.

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