A record… Investors raised $39 billion in sovereign bonds in emerging markets

The countries in via Developers have sold $39 billion of international bonds since the start of the year as investors flock to junk debt, betting that global interest rates are near their peak.

Over 20 bond issues were carried out in the first half of January in dollars and euros from 11 countries. Data from Morgan Stanley indicate that the current level of debt far exceeds the previous one record of $26 billion raised in the same period of 2018.

The subscription has exceeded the volume of the offer by at least three times in all issues, a sign of the return of appetite for emerging market debt after a year in which many countries have failed to enter markets with high global interest rates.

“More and more investors are willing to spend money and take some risk,” said Mervell Baga, EMEA sovereign credit strategist at Bank of America.

He added that issuers such as Romania and Hungary had offered “very attractive premiums” on their bonds in recently issued dollars.

And Saudi Arabia, classified as an investment-friendly environment, is the largest borrower so far, having sold bonds in dollars worth $10 billion for 5-year, 10-year and 30-year periods.

High-yield countries have joined the wave of issuance, as Turkey sold $2.75 billion worth of international bonds on Thursday at a yield of 9.75%, while Mongolia is also preparing to take advantage of the markets.

Morgan Stanley expects total sovereign debt sales to reach $143 billion in 2023, driven by sales from the Middle East and North Africa and countries classified as favorable environment for investment in Asia.

That’s well above last year’s multi-year low of $95 billion, but well below the high record of 2020 of $233 billion.

It was not only emerging economies that sought to raise liquidity, but US companies, European governments and other fixed income market participants also sought to step up issuance earlier in the year as some raised funds to help mitigate the impact of the energy crisis crisis.

“The bright spot in 2023 is that many international emerging market bonds are not maturing,” said Gregory Smith, fund manager for emerging market economies at M&G Investments, referring to what are considered riskier emerging markets.

Smith added that Egypt will have to issue medium-term bonds, but could wait for market conditions to improve, with yields falling to between 8% and 9%, from the current level of the double dozen.

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