Bond sales wake up from slumber as Fed talks rock emerging markets
(Bloomberg) – Emerging market bond sales are coming to life ahead of this week’s Federal Reserve meeting, as renewed speculation about the impending cut prompts borrowers to raise funds while they are still cheap.
Last week shattered a summer lull in dollar and euro denominated debt, bringing in $ 36 billion in government and corporate issuance after the previous 10 weeks had seen just $ 90 billion raised. Sales from Indonesia, Turkey, Chile, Serbia and Hungary were all met by strong investor demand. Middle Eastern borrower Arab Petroleum Investments Corp. is due to appeal to investors on Monday, as Nigeria gears up for its first dollar bond sale in nearly three years.
The flood marks a turnaround for a market in which sales had fallen at the slowest quarterly pace in three years due to a seasonal decline, as well as spasms in the corporate debt market linked to China Evergrande. A record refinancing pipeline and further speculation about the Fed’s tapering created a sense of urgency.
“It’s going to pick up pretty quickly from here on out and the fourth quarter will be strong,” said Nick Eisinger, co-head of fixed income assets in emerging markets at Vanguard Asset Management in London. “Many countries have yet to complete their funding and some will pre-fund next year, especially before the Fed stall.”
Governments and businesses in the developing world have some $ 102 billion in debt maturing until the end of the year and another $ 389 billion next year. This would leave investors rich in cash and keen to reinvest in emerging markets as long as they offer attractive additional yields compared to US Treasuries.
“We would buy new debt and we are able to do that in our fund,” Eisinger said.
Take no risk
The northern hemisphere’s summer is usually a sluggish time for bond sales, but this year governments were even less motivated to borrow as the International Monetary Fund released funds and oil prices rose. Issuances totaled $ 127 billion this quarter, up from $ 161 billion in the same period last year.
Today, as the Fed’s tapering approaches, borrowers are taking no risk and raising funds before yields rise.
“Issuance will increase significantly before the end of the quarter in all regions due to good markets and strong investor liquidity,” said Stefan Weiler, London head of debt capital markets for Central and Eastern Europe, Middle East & Africa at JPMorgan Chase & Co. “October will be busy too. ”
Meanwhile, the agreements arrive. Serbia sold the first Balkan green bond, while Polish firm MBank SA raised 500 million euros ($ 586 million) to become the first Polish lender to offer a green bond denominated in euros. Nigeria, which was due to sell $ 3 billion in the second week of October, has already hired banks.
There is also a renewal of loans in Asia. China has an oversized impact on the timing of new issues, said Todd Schubert, head of fixed income research at Bank of Singapore Ltd. But the increase in emissions suggests that the fallout from Evergrande could be contained. China Merchants Bank sold bonds on September 9. Sinochem Group also issued debt last week.
Middle Eastern borrowers, known for their above-average sales, are also entering the market. Arab Petroleum Investments Corp., also known as Apicorp, has mandated the banks to hold a series of calls to fixed income investors starting September 20.
“We have a strong pipeline for the rest of the year and we expect volumes to match or exceed last year,” said Hitesh Asarpota, Managing Director, responsible for loan syndications and capital markets. loan from Emirates NBD Capital, Dubai’s largest lender.
Here are the events to watch for this week:
- Brazil’s central bank is expected to raise the Selic benchmark by 100 basis points to 6.25%, even after Banco Central do Brasil chairman Roberto Campos Neto surprised investors last week by saying that Authorities would not change their plans every time new data was released. As the bank raised rates 325 basis points this year, Brazil’s annual inflation hit a five-year high in August, with the rate approaching 10% faster than expected.
- Turkey’s central bank will hold its monthly rate-setting meeting on Thursday. Inflation surged in August, bringing the real interest rate to minus 25 basis points and posing a new challenge to central bank governor Sahap Kavcioglu. He pledged to keep the benchmark above inflation, but faced calls from President Recep Tayyip Erdogan for a rate cut
- The South African Reserve Bank will likely keep rates unchanged on the same day, ignoring what is expected to be a temporary break in inflation
- “Still, the statement could become more hawkish, in line with inflation risks still high and the expectation of a US rate hike,” Bloomberg Economics said in a report. “This increases the prospect of a 4Q rate hike”
- Four central bank meetings are scheduled for the coming week from Asia: Indonesia, Pakistan, Philippines and Taiwan. All should keep their benchmarks unchanged
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