EM bond gross sales high $50 billion in money sprint to beat Trump – and Fed – surprises

By Libby George and Karin Strohecker

LONDON(Reuters) – Rising market nations and firms have issued a flood of bonds topping $55 billion, essentially the most in years, as debtors rush to lock in money earlier than the potential tumult of the second Donald Trump administration in the US.

Saudi Arabia offered a whopping $12 billion in bonds final week, Mexico $8.5 billion and Chile greater than $3 billion, together with Slovenia, Hungary, Indonesia, Estonia and a string of corporations.

Lots of them had been issued at zero premium over current bonds, whereas euro-denominated debt was additionally again in vogue.

Morgan Stanley (NYSE:MS) calculations present a complete of $55.5 billion in issuance 12 months so far, essentially the most in additional than a decade, and properly above final 12 months’s $44.6 billion.

“Debtors wish to be on the entrance of that issuance wave,” mentioned Stefan Weiler, head of CEEMEA debt capital markets at JPMorgan.

Weiler mentioned debtors had been coming “en masse and in measurement” to situation roughly one other $30 billion in debt gross sales forward of Jan. 20, when Trump’s inauguration may spark volatility, and forward of the U.S. Federal Reserve assembly on the finish of the month, which may sign adjustments to its rates of interest plans.

Trump’s aggressive guarantees to put extra tariffs on China threaten economies throughout a swathe of rising nations – mainly China but additionally commodity exporters like Chile and Brazil. His penchant for unpredictable insurance policies additionally tends to rattle markets.

However nascent re-inflation fears in the US – and blockbuster jobs development – is including hearth to the bellies of those that want to boost cash.

“There’s this re-inflation narrative that sort of spooks the market,” mentioned Nick Eisinger, co-head of rising markets fastened earnings with Vanguard.

“General risk-free yields due to this fact must go up. And due to this fact the place to begin by way of nations eager to do new points will get dearer.”

BULLDOZER ROLLS ON

Rising market issuance final 12 months was already like a “bulldozer,” in accordance with BNP Paribas (OTC:BNPQY). Matt Doherty, head of CEEMEA syndicate at BNP Paribas, mentioned that is persevering with.

Those that wanted money had been funding properly upfront in 2024 to keep away from the “slipstream” of U.S. election-induced volatility.

Now, with the market recalibrating from expectations of as many as 5 charge cuts from the U.S. Fed all the way down to doubtlessly only one, there was extra cause to front-load issuance.

“I would not be shocked when you have one other first half the place we see the perfect a part of $200 billion in issuance from CEEMEA,” Doherty mentioned, referencing final 12 months, when 70% of rising market debt raised was within the first six months of the 12 months.

“There is not actually any cause for folks to attend.”

So far, the common new-issue premium has additionally been between 0 to 10 foundation factors (bps), in contrast with 15 to twenty bps early final 12 months, Doherty added.

However excessive yields in contrast with latest years prompted some sovereigns, corresponding to Saudi or Indonesia, to go for shorter-term bonds somewhat than their typical 30-year gross sales.

An unusually excessive variety of issuers – together with Chile, Indonesia and Hungary – additionally provided euro-denominated bonds to utilize decrease yields within the bloc.

COVID DEBTS AND FEAR OF THE FED

Including to funding wants are almost $500 billion of redemptions in rising markets due this 12 months, in accordance with Paribas information, as short-term debt issued in 2020 in the course of the COVID-19 pandemic comes due.

Financial institution of America’s David Hauner mentioned the COVID-era debt repayments meant that exterior the Gulf nations, internet issuance could be decrease than final 12 months. Complete (EPA:TTEF) issuance for corporations, corporates and different rising market entities this 12 months, he mentioned, could be round $567 billion.

However as many as attainable, he mentioned, would situation early, due additionally to fears that the U.S. Fed may even hike charges once more.

Whereas that’s not a Financial institution of America expectation, Hauner mentioned it might be “very brutal for fastened earnings.”

“It is essentially the most harmful state of affairs for EM credit score,” he mentioned.

So far, the market has simply absorbed the issuance. Offers are oversubscribed, and each issuer is elevating the cash they aim.

However Citi, in a observe, mentioned dangers are excessive – and the market may shift rapidly.

“All the present assist for EM credit score is sure to be short-lived” Citi’s observe mentioned.

(This story has been corrected so as to add an attribution and take away an misguided reference to particular person issuers in paragraph 16)