Despite rise in short-term interest rates, long-term interest rates, instead of rising, have moderated, leading to a further flattening of the global yield curve and narrowing down of credit spreads. EMEs have taken advantage of favourable financial conditions. During the first half of 2005, EMEs focused on operations aimed at meeting domestic and external obligations and lengthening maturities.
However, higher global interest rates could contribute to widening of emerging market bond spreads, particularly those with high debt to GDP ratio. In view of expected deceleration in financial conditions, some emerging markets have cushioned by advancing their external financing, taking advantage of current benign financial market conditions.