By Libby George and Karin Strohecker
LONDON (Reuters) -Rising market nations and corporations have issued a flood of bonds to this point this yr topping $55 billion, probably the most in years, as debtors rush to lock in money earlier than the potential tumult of the second Donald Trump administration in the US.
Saudi Arabia bought a whopping $12 billion in bonds final week, Mexico $8.5 billion and Chile greater than $3 billion, together with Slovenia, Hungary, Indonesia, Estonia and a string of firms.
A lot of them had been issued at zero premium over current bonds, whereas euro-denominated debt was additionally again in vogue.
Morgan Stanley (NYSE:) calculations present a complete of $55.5 billion in issuance yr thus far, probably the most in additional than a decade, and effectively above final yr’s $44.6 billion.
“Borrowers want to be at the front of that issuance wave,” mentioned Stefan Weiler, head of CEEMEA debt capital markets at JPMorgan.
Weiler mentioned debtors had been coming “en masse and in size” to situation roughly one other $30 billion in debt gross sales forward of Jan. 20, when Trump’s inauguration might spark volatility, and forward of the U.S. Federal Reserve assembly on the finish of the month, which might sign modifications to its rates of interest plans.
Trump’s aggressive guarantees to put extra tariffs on China threaten economies throughout a swathe of rising nations – mainly China but in addition commodity exporters like Chile and Brazil. His penchant for unpredictable insurance policies additionally tends to rattle markets.
However nascent re-inflation fears in the US – and blockbuster jobs development – is including hearth to the bellies of those that want to boost cash.
“There’s this re-inflation narrative that kind of spooks the market,” mentioned Nick Eisinger, co-head of rising markets fastened revenue with Vanguard.
“Overall risk-free yields therefore have to go up. And therefore the starting point in terms of countries wanting to do new issues gets more expensive.”
BULLDOZER ROLLS ON
Rising market issuance final yr was already like a “bulldozer,” in line with BNP Paribas (OTC:). Matt Doherty, head of CEEMEA syndicate at BNP Paribas, mentioned robust issuance is continuous.
Those that wanted money had been funding effectively upfront in 2024 to keep away from the “slipstream” of U.S. election-induced volatility.
Now, with the market recalibrating from expectations of as many as 5 charge cuts from the U.S. Fed right down to doubtlessly only one, there was extra motive to front-load issuance.
“I wouldn’t be surprised if you have another first half where we see the best part of $200 billion in issuance from CEEMEA,” Doherty mentioned, referencing final yr, when 70% of rising market debt raised was within the first six months of the yr.
“There isn’t really any reason for people to wait.”
To this point, the common new-issue premium has additionally been between 0 to 10 foundation factors (bps), in contrast with 15 to twenty bps early final yr, Doherty added.
However excessive yields in contrast with current years prompted some sovereigns, corresponding to Saudi and Indonesia, to go for shorter-term bonds slightly than their standard 30-year gross sales.
An unusually excessive variety of issuers – together with Chile, Indonesia and Hungary – additionally provided euro-denominated bonds to utilize decrease yields within the bloc.
The Africa Finance Company on Monday was within the strategy of finalizing the launch of a uncommon $500 million hybrid bond, in line with IFR, whereas Slovakia’s debt company mentioned it will situation contemporary bonds at a Jan. 20 public sale.
COVID DEBTS AND FEAR OF THE FED
Including to funding wants are almost $500 billion of redemptions in rising markets due this yr, in line with Paribas information, as short-term debt issued in 2020 throughout the COVID-19 pandemic comes due.
Financial institution of America’s David Hauner mentioned the COVID-era debt repayments meant that exterior the Gulf nations, internet issuance can be decrease than final yr. Whole (EPA:) issuance for firms, corporates and different rising market entities this yr, he mentioned, can be round $567 billion.
However as many as doable, he mentioned, would situation early, due additionally to fears that the U.S. Fed might even hike charges once more.
Whereas that’s not a Financial institution of America expectation, Hauner mentioned it will be “very brutal for fixed income.”
“It’s the most dangerous scenario for EM credit,” he mentioned.
To this point, the market has simply absorbed the issuance. Offers are oversubscribed, and each issuer is elevating the cash they aim.
However Citi, in a word, mentioned dangers are excessive – and the market might shift rapidly.
“All the current support for EM credit is bound to be short-lived,” Citi’s word mentioned.
