According to the International Monetary Fund (IMF), domestic bond markets help to foster financial stability, reduce inflationary funding, improve financial intermediation and assist governments in managing the effects of volatility in the international economic and financial system. Khaled Fouad, senior vice-president, merchant banking at TNI, says: "In the absence of a debt market, any crisis in the banking industry will have a spillover effect and would likely require the government to step in and assume the burden in order to prevent the financial system from collapsing."
The bad news for the MENA region is that its bond markets remain among the world's weakest when it comes to financial intermediation. Bond financing remains largely the preserve of sovereign issuers, who accounted for 82% of international bonds outstanding at the end of 2003; corporates accounted for just 4% of outstanding bonds, while the financial sector accounted for 14%. Although average yields are in line with other regions, the duration of bond maturities is lower, reflecting investors' lack of appetite for long-term exposure, partly as a result of the immaturity of secondary markets. As of September 2004, the average maturity of MENA bonds was 3.5 years, with an average yield of 5.8%.