The amount of dollar-denominated debt issued by financial institutions stepped up to reach a record high during the third quarter as the influence of central banks receded, according to the latest quarterly review from the Bank of International Settlements (BIS), released on Sunday.
"Developments during this quarter stand out for one reason: For once, central banks took a back seat," Claudio Borio, head of the BIS' monetary and economic department was quoted as saying in the review.
"It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks' every word and deed," he continued.
Total issuance of international debt securities during the third quarter slipped 10 percent to hit $1.4 trillion.
Within advanced economies, a below-average pace of repayments meant quarterly net issuance jumped 40 percent with the year-to-date net figure at its highest level since 2009.
Turning to emerging markets, quarterly net issuance dropped 35 percent from its abnormally large amount the previous quarter but the year-to-date figure still showed a 73 percent jump over 2015's equivalent number.
The lower EM net issuance figure this quarter particularly reflected a sharp slowdown in sovereign borrowing by oil-producing governments.
However, looking ahead, fourth-quarter figures should be bolstered once again by Saudi Arabia's $17.5 billion bond issue placed in October and it is worth remembering the heady pace of issuance during the second quarter, driven by oil exporters such as Oman, Qatar and the United Arab Emirates.
From a currency perspective, a notable reversal could be seen in the trend towards the increased use of the euro as a funding currency as the dollar retook the baton.
The move has been partly attributed to funding shifts ahead of October's reform of money market funding and partly to other factors such as the relative costs of borrowing in the two currencies across countries as yields staged a significantly more determined march upwards in the U.S. and the dollar's strengthening momentum continued.
The review also highlighted the growing importance of Chinese and Russian banks with the latest – although, admittedly, incomplete - data set revealing China to be the eighth-largest cross-border creditor in the international banking market and Russia the 19th largest. This shows a noteworthy step-up from only June 2016 when figures showed China to be the 10th largest and Russia the 23rd.
Simultaneously, the rapid rise of yuan use was highlighted in the review, with claims the Chinese currency's turnover has approximately doubled every three years over the past decade and a half with total daily turnover now above $200 million – or equal to 4 percent of global FX turnover.
These activities make the yuan the eighth-most-traded currency in the world – ahead of the Mexican peso and only slightly lagging the Swiss franc and Canadian dollar.
The review also sketched out a snapshot of the foreign exchange markets, saying over the last three years, hedge funds, non-financial end users and smaller banks have lessened their market presence as institutional investors upped theirs, mostly for hedging purposes.
The sharp drop – around 30 percent in spot markets and 22 percent overall – in foreign exchangea ctivity conducted via prime brokers, as banks reassessed strategies for these divisions, was also highlighted.