EMPs matter greatly (e.g. Eichengreen and Gupta (2014)). Now, more than 6.5 years later since their launch, EMPs appear to have contributed to the nascent economic recovery in the United States, and the Federal Reserve has finally discontinued its LSAP series of mortgage-backed securities and Treasury bonds purchases and is preparing to raise the policy rate for the first time in a decade. In contrast, the European Central Bank has recently launched its own LSAP in addition to other EMPs. These measures have helped drive down yield curves in Europe to record lows, suggesting the impacts of EMPs on global financial markets and its contribution to global liquidity will endure.

This paper focuses on the impact of global liquidity factors on a subset of capital inflows to EMDEs which has grown dramatically: the external issuance of bonds by corporates and sovereigns. Bond markets have become a major transmission channel of global liquidity (e.g. Shin (2013), Avdjiev et al (2014)). During 2009-14, corporates and sovereigns in EMDEs cumulatively issued $1.5 trillion in external bonds—overwhelmingly in foreign currencies—representing almost a tripling from $520 billion in 2002-07. This surge is not driven by a single region or country, but reflects a broad-based trend since the cumulative issuance to GDP ratio is 6.7% for the median EMDE, up from 4.3% in the pre-crisis period. For example, various countries issued externally for the first time during the period, including Angola, Armenia, Botswana, Ghana, Kenya, Laos, Namibia, and Mozambique.

Against this backdrop, this paper seeks to answer five main research questions:

- <u>Question 1: What are the main trends in external issuance by EMDE entities during the</u> 2000-14 period (e.g. volumes, stocks, currencies, maturities, yields)?

- <u>Question 2: What is the impact of global factors—proxied by financial conditions in the</u> United States—on the _propensity_ to issue external bonds by an EMDE country-industry compared to its historical issuance average?

- <u>Question 3: What is the impact of these global factors on two important bond</u> characteristics at the time of issuance: its _yield_ (and spread) and _maturity_ ?

- <u>Question 4: Do country characteristics interact and amplify or dampen the impact of global</u> factors?

- <u>Question 5: Does the risk-taking channel through exchange rate appreciation as described</u> and tested in Bruno and Shin (2015a, 2015b) also operate in a similar fashion for external bond issuance by increasing the propensity for country-industries to issue externally? In our setting, this channel hypothesizes that local currency appreciation strengthens local borrowers’ balance sheets and their external bond issuance capacity which triggers higher cross-border flows by international investors who are willing to take on more risk.

Our paper makes four contributions. First, we compile external bond issuance data sets, which cover the universe of external bond issuances by EMDEs during 2000-14. We use these data sets to document recent trends in bond flows, stocks, pricing, and maturities across EMDEs. Second, to our knowledge, this paper is the first to study the impact of global factors on primary activity of EMDE entities in international bond markets since the start of new millennium. Third, we find support for the risk-taking channel of exchange rate appreciation for external bond issuance. Fourth, we undertake the analysis on the country-industry or bond tranche level which allows us to account for industry-specific and deal-specific factors (e.g. currency, bond riskiness, bond size).

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