For example, Mexico, even with its history of macroeconomic instability, can borrow in pesos at a thirty-year maturity at roughly 8 percent. These low yields are part of a more general decline in compensation for risk in emerging markets, a trend also evidenced by low risk spreads on dollar-denominated bonds and rising stock prices.
In part, this trend reflects the low volatility in international financial markets in recent years. However, it also reflects improvements in the economic policies and debt positions of emerging-market economies. In the past, an environment of low risk spreads contributed to overborrowing, booms, and then busts.