EM bond sales top $50bn in cash dash to beat Trump, Fed surprises By Reuters

By Libby George and Karin Strohecker

LONDON (Reuters) – Emerging market countries and companies have issued a flood of bonds so far this year topping $55 billion, the biggest in years, as borrowers rush to lock in cash ahead of the tumult potential of the second administration of Donald Trump in the United States. .

Saudi Arabia sold $12 billion in bonds last week, Mexico $8.5 billion and Chile more than $3 billion, along with Slovenia, Hungary, Indonesia, Estonia and a host of companies.

Many of them were issued at the first zero on existing bonds, while euro debt was also back in fashion.

Morgan Stanley (NYSE: ) calculations show a total of $55.5 billion in year-to-date issuance, the most in more than a decade, and well above last year’s $44.6 billion.

“Lenders want to be at the front of that issuance wave,” said Stefan Weiler, head of CEEMEA debt capital markets at JPMorgan.

Weiler said borrowers are coming “in droves and sizes” to issue about another $30 billion in debt sales before Jan. 20, when Trump’s inauguration could spark volatility, and before the meeting of the The US Federal Reserve at the end of the month, which could signal changes to its interest rate plans.

Trump’s aggressive promises to impose additional tariffs on China threaten the economies of a range of emerging countries – mainly China, but also commodity exporters such as Chile and Brazil. His penchant for unpredictable policies also tends to rattle the markets.

But fears of nascent reinflation in the US – and blockbuster job growth – are adding fire to the bellies of those who need to raise money.

“There’s this reinflation narrative that’s shutting down the market,” said Nick Eisinger, co-head of emerging fixed income markets with Vanguard.

“Risk-free yields in general have to go up. And therefore the starting point in terms of countries that want to make new issues becomes more expensive.”

BULLDOZER ROLL ON

The issue of the emerging market last year was already like a “bulldozer”, according to BNP Paribas (OTC:). Matt Doherty, head of the CEEMEA syndicate at BNP Paribas, said strong issuance continues.

Those who needed money financed well in advance in 2024 to avoid the “slipstream” of the volatility induced by the US elections.

Now, with the market recalibrating from expectations of as many as five rate cuts from the US Fed down to potentially just one, there was more reason for front-loading issuance.

“I wouldn’t be surprised if you have another first half where we see the better part of $200 billion in issuance from CEEMEA,” Doherty said, referring to last year, when 70% of emerging market debt rose it was in the first six months of the year.

“There’s really no reason for people to wait.”

So far, the average premium on new issuance has also been between 0 to 10 basis points (bps), compared with 15 to 20 bps early last year, Doherty added.

But high yields compared to recent years have prompted some sovereigns, such as Saudi Arabia and Indonesia, to opt for shorter-dated bonds rather than their usual 30-year sales.

An unusually high number of issuers – including Chile, Indonesia and Hungary – are also offering euro-denominated bonds to take advantage of lower yields in the bloc.

Africa Finance Corporation on Monday was in the process of finalizing the launch of a rare $500 million hybrid bond, according to the IFR, while Slovakia’s debt agency said it will issue fresh bonds in an auction of on the 20th of January.

PURE COVID DEBTS OF THE FED

Adding to the financing needs are almost $500 billion of redemptions in emerging markets due this year, according to Paribas data, as short-term debt issued in 2020 during the COVID-19 pandemic comes to an end.

Bank of America’s David Hauner said the COVID-era debt repayments meant that outside of the Gulf countries, net issuance would be lower than last year. Total (EPA:) issue for companies, corporations and other emerging market entities this year, he said, would be about $567 billion.

But as much as possible, he said, issue earlier, because of the fear that the Fed of the United States could also increase the rates again.

While that’s not Bank of America’s expectation, Hauner said it would be “very brutal for fixed income.”

“It’s the most dangerous scenario for EM credit,” he said.

So far, the market has easily absorbed the issue. The deals are oversubscribed, and each issuer collects the money it targets.

But Citi, in a note, said the risks are high – and the market could change quickly.

“Any current support for EM credit is likely to be short-lived,” the Citi note said.