EM bond sales surpass $50 billion in cash dash to hit Trump, and Fed, surprise By Reuters

Written by Libby George and Karin Strohecker

LONDON (Reuters) – Emerging economies and companies have issued a record amount of bonds so far this year topping $55 billion, the most in years, as borrowers scramble to lock up cash ahead of a potential upheaval in Donald Trump’s second administration in the United States. .

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

Many of them were issued at zero premium over existing bonds, while euro-denominated debt was also back in vogue.

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

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

Weiler said borrowers are coming “in droves and sizes” to issue an additional $30 billion in debt sales ahead of January 20, when Trump’s inauguration could trigger a tense situation, and ahead of the US Federal Reserve’s meeting at the end of the month. it can reflect changes in its interest rate plans.

Trump’s aggressive promises to impose more tariffs on China threaten the economies of many developing countries – especially China but also exporters such as Chile and Brazil. His penchant for unpredictable policies also tends to roil the markets.

But renewed fears of inflation in the United States – and blockbuster job growth – add fire to the bellies of those who need to raise money.

“There’s this story of re-inflation disrupting the market,” said Nick Eisinger, head of emerging markets fixed income with Vanguard.

“Overall the risk-free yield should rise. So the first place in terms of countries that want to innovate is more expensive.”

THE BULLDOZER CONTINUES

Emerging market issuance last year has been a “bulldozer,” according to BNP Paribas (OTC: ). Matt Doherty, head of the CEEMEA syndicate at BNP Paribas, said strong issuance continues.

Those who needed the cash were funded early in 2024 to avoid the “flow” of volatility caused by the US election.

Now, with the market returning to expectations of as many as five rate cuts from the US Fed down to a possible one, there was even more reason for the front-loading to be released.

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

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

So far, the average new issue premium has also been between 0 to 10 basis points (bps), compared to 15 to 20 bps at the start of last year, Doherty added.

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

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

Africa Finance Corporation on Monday was in the process of finalizing the issuance of a $500 million hybrid bond, according to IFR, while Slovakia’s Credit Agency said it will issue new bonds at a January 20 auction.

COVID LIABILITIES AND FEAR OF THE FED

Adding to the financing needs is about $500 billion in emerging markets due this year, according to Paribas data, as short-term debt issued in 2020 during the COVID-19 crisis comes due.

David Hauner of Bank of America said that the deleveraging of the COVID-19 era means that outside of the Gulf countries, net issuance will be lower than last year. Total (EPA:) the issuance of companies, companies and other emerging market organizations this year, he said, will be about 567 billion dollars.

But as many as possible, he said, will get out early, out of fear that the US Fed might raise rates again.

While that’s not what Bank of America expects, Hauner said “it’s going to be pretty brutal to get a fixed rate.”

“It’s a very risky situation for EM credit,” he said.

So far, the market has easily caught the release. The deals are oversubscribed, and every issuer raises the money it directs.

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

“All current EM credit support will be temporary,” Citi’s note said.