Emerging-Market Bond Issuance Soars

Borrowers in developing nations are flooding markets with a record volume of bonds before reductions in Fed monetary stimulus drive up funding costs.

International bond sales in emerging markets are up 21 percent, to US$55 billion this month, the busiest start to a year since Bloomberg began tracking the data in 1999. Poland is marketing $2 billion of 2024 bonds today after the European Union’s largest eastern economy raised 2 billion euros ($2.7 billion) last week. Petroleo Brasileiro SA, Latin America’s largest oil producer, has sold the most debt among 108 issuers, with a $5.14 billion offering of euro- and pound-denominated securities.

Companies and governments in developing countries are seeking to pre-empt any rise in borrowing costs that could result from the next round of tapering by the Fed, which decided in December to trim monthly bond purchases by $10 billion to $75 billion. U.S. policy makers next meet January 28 to 29.

“Issuers want to tap the market now, as they fear that Fed tapering and a rise in U.S. Treasury yields will lift their own funding costs,” Regis Chatellier, a London-based director of emerging-markets credit strategy at Societe Generale SA, said by e-mail yesterday. “They simply don’t want to take that risk. So I expect new issuance to remain strong, for now.”

The acceleration in developing-country bond sales comes as global issuance declined.

Mexico, Indonesia, and energy company Petroleos Mexicanos have each sold $4 billion of debt, the data show. Central and Eastern European governments are also among the 10 biggest borrowers, with Poland, Slovakia, Romania, Latvia, and Lithuania raising a combined $8.8 billion, excluding today’s Polish sale.

Slovenia hired banks for investor meetings in the U.S. and U.K. from January 21 for a possible benchmark-sized dollar sale, a person familiar with the matter said today, asking not to be identified because the terms aren’t set. PKO Bank Polski SA, Poland’s largest lender, sold 500 million euros of five-year bonds today.

Emerging European nations are more resilient to Fed tapering than peers that are struggling to contain budget and trade deficits, according to Chatellier and Timothy Ash, a strategist at Standard Bank Group Ltd.

“While many larger emerging markets have deep underlying problems, and indeed much have less-compelling stories, emerging European credit offers value on a risk/reward perspective,” London-based Ash said by e-mail yesterday.

 

Lower Yields

Yields on Poland’s 2023 dollar bonds have fallen 25 basis points, or 0.25 percentage point, this month to a two-month low of 3.95 percent at 5:25 p.m. in London. The country’s similar-maturity euro notes yield 2.76 percent.

The Federal Open Market Committee Meeting will reduce the monetary stimulus in $10 billion increments at its monthly meetings, according to a Jan. 10 Bloomberg survey of economists.

Within a month of Fed Chairman Ben S. Bernanke first bringing up tapering plans on May 22, the yield on the Bloomberg U.S. Dollar Emerging-Market Composite Index surged about 1.25 percentage points. The rate fell to a two-month low of 5.14 percent yesterday.

Yesterday’s bond sale by Petroleos Mexicanos, the state-owned oil company known as Pemex, included $3 billion of 30-year bonds, a record for an emerging-market corporate issuer.

Romania plans to issue euro-denominated notes in the first half, Budget Minister Liviu Voinea said yesterday. The European Union’s second-poorest country raised $2 billion this week, including securities maturing in 2044.

That’s the longest tenor for dollar debt in the region, Abbas Ameli-Renani, a London-based strategist at Royal Bank of Scotland Group Plc, said in an e-mail yesterday. The offering shows Romania is “oozing with confidence” due to “prudent” fiscal management and improved economic balances, he said.

The following table shows the 15 biggest borrowers in emerging markets this year.

Emerging Mkt Bond Issue

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