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BORROWERS in the developing world are rushing to lock in financing, fuelling a surge in hard-currency bond sales as yield-hungry investors keep demand strong.
According to Bloomberg, emerging-market governments and companies have already raised an eye-watering US$331bil in US dollar- and euro-denominated debt since the start of the year.
That’s the fastest pace in four years, easily eclipsing the total for the first half of last year, the international newswire reports.
This surge comes against the backdrop of a broader rally in international assets. With the US dollar on the slide and doubts swirling around the long-standing dominance of American markets, investors are flocking to emerging-market (EM) bonds for higher yields.
Analysts at Bank of America and JPMorgan Chase reckon EM assets should thrive in a weaker US dollar environment, while Societe Generale describes local assets in developing nations as enjoying a “goldilocks” moment, Bloomberg reports.
The yield spread between US dollar bonds from emerging markets and that of US Treasuries is very close to its lowest level since 2020, according to a JPMorgan index.
Yet demand has stayed strong despite tighter spreads in US markets too.
“If you’re a chief financial officer or treasurer you go when the window is open,” says Omotunde Lawal, head of EM corporate debt at Barings Investment Services, in the Bloomberg report.
“If US fiscal concerns keep on the top of minds then US yields will push higher – so maybe best to issue now rather than later.”
A cloud of uncertainty over the strength of the US economy is also nudging borrowers to act quickly before potential market turbulence hits.
“From a borrower’s perspective, the incentive of being patient has gone,” says Stefan Weiler, head of debt capital markets for Central Europe, the Middle East and Africa at JPMorgan in London.
He warns that if the United States tips into recession – a risk JPMorgan puts at 40% – spreads could widen, making it more expensive for EM borrowers to tap the market. “It’s really more about accessing the market when it’s available.”
Bloomberg notes that this issuance spree began early in the year, as countries emerged from the wave of post-pandemic defaults that rocked many developing economies last year.
Reforms announced by governments from Vietnam to Chile have also given investors confidence.
There was, however, a temporary pause after US President Donald Trump’s global tariff announcement in early April triggered a bout of volatility. But with the immediate threat of harsh levies fading, EM bonds staged a strong rebound.
That reprieve could be short-lived, though, as the administration plans to review tariff policies again in early July.
“EM has proved to be a comparative safe haven over this period,” notes Carmen Altenkirch, an analyst at Aviva Investors.
“Fundamentals have continued to improve, and sovereigns are getting rewarded for their prudence.”
Most of the action is coming from high-grade borrowers, who account for over 70% of total bond sales this year, according to Bloomberg data.
Mexico made headlines with a record-breaking deal at the start of the year, while Saudi Arabia pulled in US$12bil in a three-tranche transaction. China, too, has seen an uptick in activity.
The Middle East – where most issuers are investment-grade – has seen strong deal flow as tumbling oil prices boost funding needs. Weiler expects the region could represent more than 40% of total issuance from Central and Eastern Europe, Middle East and Africa this year.
Latin American corporates, many of which had been absent from offshore markets, have returned in force. “I’m expecting full-year volumes for Latin America to surpass last year’s figures,” says Adrian Guzzoni, head of debt capital markets for the region at Citigroup Inc.
Meanwhile, high-yield names such as Brazil, Peru and Telecom Argentina SA have also tapped the market. Even Kyrgyzstan joined the fray, raising US$700mil in its first-ever international bond sale, attracting over US$2.1bil in demand and yielding around 8%.
Yet not everyone can cash in on the current window.
“Higher Treasury yields, trade uncertainty, and lower oil prices place many lower-rated frontier countries at a distance from market access,” warns Samy Muaddi, head of emerging-markets fixed income at T. Rowe Price Associates, Inc.
Still, Morgan Stanley strategists see room for countries like Poland, Romania, Kuwait and Kazakhstan to issue soon.
Claudia Calich, head of EM debt at M&G Investment Management, adds that Central American nations like Costa Rica and Guatemala might also seize the moment. “If anybody wants to issue, we still have probably a four- to six-week window now,” she tells Bloomberg.
“Otherwise, you have to wait until September,” she adds. — Bloomberg.
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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