Brussels, London, Washington – 11 April 2019
New PwC report quantifies Euroclearability effect on Emerging Markets
Euroclear Bank in cooperation with PwC, have published the white paper “Impact of Euroclearability”. The paper examines the benefits markets can achieve when they become Euroclearable including increased liquidity in domestic sovereign bond markets, leading to higher trading volumes and lower bond yields in secondary markets.
Markets that are Euroclearable illustrate a number of features that enable international investors to access domestic bond markets, such as efficient and secure asset ownership, an investor-friendly tax and regulatory environment and other features which enable connectivity between domestic bond markets and international investors.
Controlling for wider factors, PwC finds that Euroclearability is associated with a reduction in sovereign borrowing costs of 28 basis points (bps) in primary bond issues. This is broadly equivalent to the yield differential of one credit rating notch (i.e. the difference between A- and BBB+).
For five countries that have recently obtained Euroclearability , the potential gain from lower borrowing costs is associated with a GDP boost of US$3.8 billion over 10 years. These countries reported a rise in spending on areas that benefit society, such as healthcare.
Euroclearability can provide the following benefits to an economy:
- Enhancing the international profile of the country and attractiveness to international investors.
- Facilitating access to international investors, enabling corporates and governments to raise capital more efficiently or at lower cost.
- Reducing the overall volatility of borrowing costs due to a more stable investor base.
- Facilitating access of foreign investors into local markets in a more secured and standardised way.
- Providing local investors with the opportunity to trade financial instruments with a wider range of domestic and international investors.
Valérie Urbain, CEO Euroclear Bank commented: “We are very pleased with the release of this study. The paper quantifies how Euroclearability
creates a powerful single pool of liquidity resulting in strong macro-economic benefits for emerging markets.”
Nick Forrest, Director in the PwC's Strategy& Economics practice added: “Our analysis shows that achieving Euroclearability can yield significant economic benefits to emerging markets through lower borrowing costs for sovereigns and corporates. Lower borrowing costs could translate into broader welfare gains to Euroclearable countries alongside encouraging public and private investment in infrastructure.”
Euroclear Bank provides settlement and related securities services for cross-border transactions involving domestic and international bonds, equities, derivatives and investment funds. Serving major financial institutions located in more than 90 countries, Euroclear Bank, based in Brussels, is part of the Euroclear group. Euroclear Bank is rated AA+ by Fitch Ratings and AA by Standard & Poor’s.
As well as Euroclear Bank, the Euroclear group includes Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & Ireland. The Euroclear group settled the equivalent of EUR 791 trillion in securities transactions in 2018, representing 230 million domestic and cross-border transactions and held EUR 28.8 trillion in assets for clients.
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