Local and regional issuers bring bond market diversity
The number and variety of regional and municipal issuers tapping the international markets continues to grow steadily. Central governments across the Americas, Americasand emerging markets want to devolve financial responsibility. The degree of sovereign support varies.
Lending to local and regional governments should feel simpler and safer thanks to the reassuring presence of sovereign states in the background. Instead the role of the centre often adds a new layer of complexity. A pretty clear legal framework of responsibilities may exist in Germany. But elsewhere it is often not cut and dried whether a country should, either legally or morally, avert the default of a particular town or region. In the end it's as much a matter of politics as finance.
There are in-built tensions between the centre and the regions. "It is a balancing act," says Janne Thomsen, senior vice president, European co-ordinator for international sub-sovereign group at Moody's Investor Services in London. "The central government wants to decentralize so that it can cut costs but local governments have to have sufficient funds to carry out their tasks.