International bonds from emerging-market issuers started the year strong, with help from heavy-weight sovereign borrowers.
Record volume in January
This January brought the strongest supply of international emerging-market bonds on record, with an increase of $24.2bn compared to January 2017. So far in 2018, issuers raised $99.6bn through 167 such deals, tapping mainly into the USD-denominated market ahead of the US Federal Reserve’s interest rate hike expected around March. Sovereign issuance represented more than one third of last month’s volume, with 12 issuers raising $37.5bn; heavy-weight borrowers Argentina ($9.0bn), Oman ($6.5bn), and Mexico ($3.2bn) account for 18.8% of January’s emerging market bond bonanza.
Dollar cements lead over euros
Latin American (LatAm) issuers had a great start in 2018 for printing 10-year USD bonds; Ecuador, Mexico, and Argentina all paid lower coupons compared to 2 years ago. So far, 2018 has been dollar-heavy on the emerging-market side, but a few LatAm sovereigns ventured into the euro market—including Mexico and Chile grabbing €1.5bn and €830m, respectively— alongside Poland’s green bonds, Macedonia’s debt-maturity extension, and Slovenia’s issuance with a record-low 1% coupon.
Bills coming due shortly
While yield-hungry investors have turned to emerging-market bonds amid low global rates, high sovereign debt levels are a strong signal. Even though the weak US dollar presents an excellent opportunity for emerging-market issuers to borrow in hard currency, conditions may become tougher for debt markets in 2018.
-Written by Anikó Nistor, Dealogic Research
Data source: Dealogic, as of February 6, 2018