There has been substantial EM debt issuance in the second and third quarters this year, in part due to the emergence of narrow windows where yields have been at record lows in the developed world. The Fed has been keeping monetary policy relatively loose and there has been further easing from the BoE and ECB, and additional yield curve control measures from the BoJ.
EM issuers are eyeing a potential Fed hike in December or a tightening in January so they are trying to get ahead of the curve and are trying to get as much of their issuance as they can out of the way this year before credit conditions tighten, noted Neil Shearing of Capital Economics.
Latin America has seen a particularly sizeable amount of debt capital market activity since the beginning of the year – especially on the sovereign side.
“Issuance from the region has been substantial, particularly regarding Eurobonds,” Shearing said, who stated however that this was largely as a result of Argentina.
In April, Argentina issued the largest ever single amount of debt for an EM sovereign, US$16.5bn, on the international capital markets after it secured a deal with the country’s holdout creditors. This also led to a spate of corporate and quasi-sovereign issuance from the country’s provinces.
Argentina was followed by Brazil, which printed US$1.5bn 10-year notes in March, Mexico with a US$3bn bond in August, as well as issuances from Colombia.
Issuance from Latin American sovereigns has been higher than it has been elsewhere across EM, especially in Africa, where many countries – particularly Nigeria and Angola – are struggling to maintain the health of their balance sheets, preventing them from accessing larger deals in some cases. Mozambique, South Africa and Ghana have all come to market this year.
There has also been notable sovereign issuance from the GCC including Abu Dhabi, Bahrain, Oman, Qatar, with impending large deals out of Kuwait and Saudi Arabia.
Similarly to Africa, there has been little issuance from CEE, but Shearing noted that this is because budget deficits are much smaller in the region. Russia in particular has been out of the market due to sanctions and high domestic liquidity means entities look locally to raise capital. The sovereign also funds itself either through asset drawdowns or on the domestic market.
CEE corporate issuance has also been low because balance sheets are much stronger than elsewhere.
“There is unlikely to be any notable issuances from the region,” Shearing said, adding that budget deficits and balance sheets in Asia are generally also healthier.