Emerging Market

So far this year, emerging market governments have raised more than $40 billion on international bond markets, as global inflationary pressures have eased and hopes for a Chinese economic rebound have paved the way for the fastest January borrowing spree on record.

A bruising sell-off that swept global fixed income last year, as big central banks responded to runaway inflation by sharply raising interest rates, effectively shut out many developing-world borrowers from bond markets for extended periods. However, on further indications that inflation in the US and the eurozone has peaked, money has flooded back into bonds in the new year, with countries such as Mexico, Hungary, and Turkey launching large bond sales.

“Patience did not pay off last year; the market continued to deteriorate,” said Stefan Weiler, head of CEEMEA debt capital markets at JPMorgan. “As a result, many sovereign borrowers jumped through this window of opportunity as quickly as they could this year.”

Statics From Professionals

According to Dealogic data, fourteen emerging market sovereign borrowers raised a total of $41 billion from the beginning of January until Thursday. According to Bank of America strategists, this far outpaces the early days of any previous January, which is typically a busy month for debt sales — the only year with a larger amount raised across the entire month was 2021, with $48.7 billion.

The surge in sales comes as emerging market bond prices recover from heavy losses in 2022. A JPMorgan index of emerging market foreign currency debt is up 1.7 percent this month after falling 17.8 percent last year. Investors have reduced their expectations for further interest rate hikes in major developed economies, removing a drag on emerging market debt.

The flurry of sales has come as emerging market bond prices rebound from 2022’s heavy losses. A JPMorgan gauge of emerging market foreign currency debt is up 1.7 percent so far in January, having fallen by 17.8 percent last year. Investors have dialed back their expectations of further interest rate increases in big developed economies, removing a headwind for emerging market debt.

Overview from Experts

“We’re seeing interest in new mandates coming into EM, partly because yields are so much higher,” he said. There is money that needs to be put to work, and issuers are capitalizing on it.” However, some analysts believe that a global downturn could mean that the current calm will not last, particularly for riskier emerging debt. This prospect has heightened the urgency of this month’s emerging market borrowing rush, according to Cristian Maggio, head of portfolio strategy at TD Securities.

According to Patnaik, who participated in recent bond sales by Israel, Turkey, and Mexico, the scale of issuance also reflects demand from end investors who are warming to fixed income after last year’s bloodbath. “We’re seeing interest in new mandates coming into EM, partly because yields are so much higher,” he said.

The scale of issuance also reflects demand from end investors who are warming to fixed income after last year’s bloodbath, according to Patnaik, who participated in recent bond sales by Israel, Turkey, and Mexico.

“Some issuers may have chosen to front-load,” he speculated. “If we are correct in forecasting a recession in several key economies, I do not believe market conditions will remain benign.” The scale of issuance also reflects demand from end investors who are warming to fixed income after last year’s bloodbath, according to Patnaik, who participated in recent bond sales by Israel, Turkey, and Mexico.