Before the 90's, only credit worthy issuers considered to be reliable were allowed to issue bonds in the international market. A national government that was unable to obtain investment status rating on its' national debt was restricted to borrowing required funds from banks or domestic credit markets. This restriction not only affected national governments, it also affected companies that resided in countries these governments ruled.
According to Levinson (2000, p. 88):"Companies in these countries were excluded from the international debt markets as well because, with few exceptions, the ratings agencies impose a sovereign ceiling, meaning that no borrower in a country can be rated as high as a national government. If the sovereign debt of the national government was deemed to be poor credit risk, the country's corporate debt was automatically treated the same way".
In recent years (particularly between 1994 and 1997), the emerging bond market has witnessed unprecedented growth rate.
According to Reports from the International Monetary Fund, between 1995 and 2005 the amount outstanding doubled in size every five years, from about $1 trillion in 1995 to $4.5 trillion in 2005.
Initial observations about emerging market bonds suggest that the benefits of possessing the bonds outweigh the risk (Nemerever, 1996). However, successive research with reference to the Russian 1998 bond default and the East Asian economic crises of 1997 has shown that despite the considerable amount of public attention received by the emerging bond market, it still comes with its ups and downs.
Despite cautionary warning from market analysts about the reliability of the emerging bond market, The market has proved to be quite popular with a substantial amount of institutional investors across the globe. For example, J.P. Morgan's global emerging markets Bond Index rose to 248% from 1994 to May 2004 as opposed to 195% for...