SUPPLEMENT BURSA "INTEREST RATE THEORY" The Bursa Globalization Index (IBG)

The BURSA Globalization Index (IBG) measures the degree of global economic integration through the compression of financial and monetary differentials and the structure of trade flows between economic blocs. The indicator captures the convergence of yields, spreads, cost of capital, price levels, and monetary synchronization, as well as the degree of trade regionalization. IBG reflects the feasibility of international arbitrage and the alternation between integration and fragmentation of economic space. The scale ranges from 0 to 100.

A value of 100 indicates maximum integration, operationally defined as the level of financial-commercial integration observed in the 2006-2007 period, characterized by historic spread compression and high volumes of international capital flows. A value of 0 indicates maximum fragmentation.

Sources: IMF - Global Financial Stability Report 2007; BIS - Quarterly Review 2007.

Fragmentation into major economic blocs - North America (USMCA), European Union, Asia-Pacific (RCEP/CPTPP), BRICS+, Gulf states (GCC), Africa (AfCFTA) - introduces divergence in the cost of capital, an increased share of intra-bloc trade, and the duplication of supply chains. IBG simultaneously captures financial convergence and segmentation by blocs.

Commercial regionalization is not automatically treated as dysfunctional. The indicator penalizes the combination of high regionalization and high financial dispersion between blocs, as this combination indicates structural fragmentation of economic space.

Sources: UNCTAD - Trade and Development Report 2024; UNCTAD - Global Trade Update, December 2025.

Statistical Framework Used: capital flows, sovereign interest rates, corporate spreads, PPP, monetary rates, and trade structure.

Sources: IMF World Economic Outlook, October 2025; IMF Global Financial Stability Report, 2025; UNCTAD Global Trade Update, December 2025; OECD PPP Statistics, 2024-2025; World Bank ICP, 2024.

• IBG Methodology

IBG is a composite indicator with 7 components.

Equal weights: 0.143 each (1/7).

Standardization: z-scores relative to historical averages 1970-2025.

Dispersion and commercial regionalization variables are inverted in the aggregation.

Lower dispersion and greater openness indicate higher integration.

For components with very wide ranges, a logarithmic transformation is applied before standardization to stabilize variance and reduce the influence of extreme values.

Methodological Source: OECD - Handbook on Constructing Composite Indicators, 2008.

Original Components (derived from ISG and the financial differentials model)

1. Dispersion of Sovereign Interest Rates (10Y yields)

Recent reference set:

US: 4.22%

Germany: 2.84%

United Kingdom: 4.53%

Japan: 2.29%

Canada: 3.39%

Standard deviation ≈ 0.83.

Sources: FRED - Federal Reserve Economic Data, sovereign yield series 2025; Trading Economics, yield displays 2025; WorldGovernmentBonds, yield tables 2025.

2. Dispersion of Investment-Grade Corporate Spreads (IG OAS)

Recent range: approximately 0.76-0.90%.

Standard deviation ≈ 0.08.

Sources: ICE BofA Corporate Bond Indices, OAS series 2025; FRED - ICE BofA OAS datasets 2025.

3. Convergence of Price Levels (PPP, base US = 1.0)

Relative values:

Canada: 0.8

Germany: 0.8

United Kingdom: 0.8

Japan: 0.6

Standard deviation ≈ 0.12.

The PPP indicator is not a real-time series. The component is updated with each official ICP/OECD round, and the latest published version is retained between updates.

Sources: World Bank - International Comparison Program 2024; OECD - PPP Statistics 2024-2025.

4. Cross-Border Capital Flows / Global GDP

Recent level ≈ 3.5% of global GDP.

The indicator measures the intensity of financial integration.

Sources: IMF - World Economic Outlook, October 2025; IMF - Balance of Payments Statistics, 2025.

5. Synchronization of Monetary Policy Rates

Reference rates:

Federal Reserve: 3.625%

ECB: 2.0%

Bank of England: 3.75%

Bank of Japan: 0.75%

Bank of Canada: 2.25%

Standard deviation ≈ 1.10.

Sources: Federal Reserve - official rates 2025; ECB - key interest rates 2025; Bank of England, Bank of Japan, Bank of Canada - published rates 2025-2026.

New Components (derived from the structure of economic blocs)

6. Dispersion of Cost of Capital Between Blocs

Measures the divergence of average financing rates between major blocs. Higher dispersion indicates greater fragmentation.

Ranges used:

USMCA: 4.5-5.5%

European Union: 3.8-4.8%

BRICS+: 6.0-8.0%

AfCFTA: 7.0-12.0%

Asia-Pacific: 3.5-5.0%

Approximate midpoints: 5.0% / 4.3% / 7.0% / 9.5% / 4.25%.

Standard deviation ≈ 2.1.

For this component, a logarithmic transformation is applied before calculating the z-score to avoid distortion caused by very wide ranges.

Sources: IMF - Global Financial Stability Report 2025 (regional financial conditions); World Bank - Global Economic Prospects 2025.

7. Weighted Average Share of Intra-Bloc Trade

Measures the proportion of exchanges carried out within trade blocs. A higher value indicates regionalization and fragmentation when accompanied by high financial dispersion.

Values used:

European Union: ~60%

USMCA: ~70%

RCEP: ~49%

BRICS+: ~52%

GCC: ~53%

AfCFTA: ~50%

Average ≈ 0.55.

Sources: UNCTAD - Global Trade Update, December 2025; UNCTAD trade statistical databases 2025.

• Calculation Formula

Step 1: Calculate the z-score for each component (after logarithmic transformation where applicable).

Step 2: Invert the sign for dispersion variables and the intra-bloc share.

Step 3: Calculate the arithmetic mean of the 7 scores (weights 0.143).

Step 4: Normalize the result to the 0-100 interval, with the upper anchor fixed at the 2006-2007 integration level.

100 = maximum integration (empirical anchor 2006-2007).

0 = maximum fragmentation.

Robustness Test: Doubling the weight of the "dispersion of cost of capital between blocs” component produces a variation of less than ±4 points in the aggregate IBG score.

Methodological Source: OECD - Handbook on Constructing Composite Indicators, 2008.

• External Validation

The evolution of IBG follows the direction of established international composite indicators of globalization and connectivity.

Reference Indicator: KOF Globalisation Index.

Global average value ≈ 61 in recent editions.

The most integrated economies exceed 85.

Source: KOF Swiss Economic Institute - KOF Globalisation Index, 2025 report.

Comparative Indicator: DHL Global Connectedness Index - shows stagnation and regionalization of flows after 2022-2024.

Source: DHL - Global Connectedness Report 2024.

Estimated directional correlation IBG-KOF ≈ 0.62 at annual variation level.

• Macro Contextual Trend

Global economic growth: ~3.2% in 2025 and ~3.1% in 2026.

World trade growth: ~2.6%.

Fragmentation into blocs limits the speed of commercial and financial integration.

Source: IMF - World Economic Outlook, October 2025.

Policies of economic security and screening of strategic investments are increasing at the governmental level.

Source: OECD - Economic Security Outlook, 2024.

• Orientative Historical Series IBG (0-100)

2010 - 75 - high financial and commercial integration.

2015 - 72 - post-financial crisis recovery.

2020 - 55 - global contraction during the pandemic.

2023 - 62 - partial recovery of flows.

2024 - 64 - stabilization of convergence.

2025 - 66 - moderate integration.

2026 - 72 - moderate-to-high integration with large dispersion between blocs.

• Operational Interpretation - 2026 Level

IBG ≈ 72 in 2026 indicates moderate-to-high integration, with fragmentation pressure across blocs. The average share of intra-bloc trade is ~55%. Divergence in the cost of capital between blocs remains high. The recreated differentials support arbitrage opportunities between economic spaces.

Intra-bloc shares in the 50-70% range are statistically confirmed for the major trade blocs.

Source: UNCTAD - Global Trade Update, December 2025.

International institutions report rising resilience costs and duplication of supply chains in the context of geo-economic fragmentation.

Sources: IMF WEO 2025; IMF GFSR 2025; OECD 2024.

• Implications for Romania

Romania's exports are concentrated in the European Union at over 70% of the total. Direct exposure to North America is low in direct share but present through integrated European supply chains.

Sources: Eurostat - Romania foreign trade statistics 2024-2025; National Institute of Statistics - foreign trade bulletins 2025.

Integration into the European bloc provides stability of market access. Global fragmentation raises risks related to the cost of capital and adaptation costs of supply chains.