(Bloomberg) -- JPMorgan Chase & Co. expects bond sales from emerging markets in Europe, the Middle East and Africa to close the year at a record, even with potential market turbulence due to US presidential elections in November and escalating tensions in the Middle East.
The expected record, which comprises both sovereign and corporate hard currency issuances, comes as the US Federal Reserve recently cut interest rates for the first time in more than four years, while the extra yield on emerging-market dollar bonds has tumbled to the lowest since 2018. The bank expects 2024 debt issuance to break the previous record of $265 billion set in 2020, with $253 billion sold so far this year.
With this year already the second highest ever, “I expect that by year-end the overall issuance volume from the region will likely establish a new all-time record,” said Stefan Weiler, the London-based head of debt capital markets for the region at JPMorgan, the second biggest underwriter of emerging-market bond sales after Citi.
Emerging-market bond sales have been driven by concern about US elections, which has encouraged borrowers to close deals before potential fluctuations in US Treasuries and in the cost of borrowing for developing-market borrowers.
Global issuance by governments and companies has jumped 59% to $507 billion this year so far, according to data compiled by Bloomberg. Of the total, around half came from the EMEA region, with sales from Saudi Arabia, Poland, Romania and Turkey topping global emerging-market sales, even with the absence of sanctioned Russia, once a major borrower, data showed.
The conclusion of Ukraine, Zambia and Suriname debt restructuring, along with the near-completion of similar measures in Ghana and Sri Lanka, support demand for high-yield names as the countries exit a wave of sovereign debt defaults that followed the Covid-19 pandemic. Also, the Maldives recently secured an extension of two currency-swap agreements with India to shore up its access to foreign exchange, avoiding a potential default on Islamic bonds.
“Demand for high-beta names is particularly strong at the moment as investors are keen to lock in high yields,” said Weiler, referring to junk-rated credits with potentially higher returns. “We’re enjoying a very healthy market for primary issuance, with significant order book oversubscriptions, which are allowing many issuers to price new deals flat or through fair value.”
Turkey Record
The appetite for Turkish deals was especially strong as the stabilization of the economy boosted investor sentiment.
Ankara secured its second credit rating upgrade in six months from Fitch Ratings in September, amid improving external buffers and a strong pickup in reserves. Turkish government and corporate hard-currency sales surged 144% from last year to $28 billion, according to data compiled by Bloomberg.
“Turkey is probably the story of the year” within the region, he said. “Several corporate borrowers successfully are accessing the international debt capital markets for the first time.”
The demand for emerging-market bonds doesn’t only come from funds dedicated to such issues but also from other investors as risk perception improves.
“Cross-over money that had left EM because of higher US rates is now starting to come back” because yields offered in emerging markets are becoming more attractive as rates decline in the US, he said. The trajectory of rates is lower and this will support demand for 2025, Weiler added, saying “we also have a very optimistic view for next year.”
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