Weekly Bond Market Update | August 21, 2026

The 17th Session of the Conference of the Parties to the United Nations Convention to Combat Desertification (UNCCD COP17) has officially begun. The Faversham House research organization highlights the significance of Mongolia hosting this year’s conference, given that 77% of the country’s total land area is affected by desertification and land degradation.

For a country highly vulnerable to desertification risks, researchers recommend increasing efforts to attract diversified financing aligned with land degradation mitigation and restoration targets, while seeking solutions to strengthen the country’s capacity to meet its financial obligations.

Researchers at the London School of Economics and Political Science (LSE) estimate that the deterioration of a country’s environmental and ecological conditions is highly likely to have a direct impact on its credit rating.

For example, based on economic data from 53 developed and developing countries covering the period from 2000 to 2020, the study found that environmental degradation contributed to an average increase of 25–70 basis points in the yields of 2-year and 5-year government bonds.

In addition, Fitch estimates that 60 out of more than 119 developing countries could face a heightened risk of credit rating downgrades by 2050. The agency’s Climate Vulnerability Signals analytical tool assesses climate-related risks and energy transition risks in developing countries on a scale of up to 100 points. The analysis warns that countries with economic structures similar to Mongolia’s face a relatively high probability of credit rating downgrades.

Therefore, for Mongolia, which is highly dependent on mining exports, both climate-related risks and energy transition risks are becoming increasingly important factors for its sovereign credit rating.

Fitch affirmed Mongolia's sovereign rating at B+ with a Stable Outlook on August 19. The action is supported by strong medium-term GDP growth of ~5.5-5.6%, modest government debt, and high per capita income relative to 'B' category peers.

The current account also swung to a $207M surplus in 1H 2026, aided by a 64% y/y jump in mineral exports. On the negative side, Fitch flagged high external financing needs, heavy commodity/China concentration, and rising inflation at 13% y/y — a three-year high — which prompted the Bank of Mongolia to hike rates 50bps to 12.5% on August 12. Mongolia is rated BB- Stable at S&P and B1 Stable at Moody's.