New data shows hard currency bonds in emerging markets in Q1 are almost double that of a year ago
Emerging market governments have raised nearly $100 billion in hard currency bonds over the first three quarters of the year - almost double year-ago levels - and the boom could continue if Saudi Arabia's highly-anticipated debut arrives.
Data from Bank of America Merrill Lynch (BAML) showed the hard-currency sovereign tally stood at $98.6 billion, a sharp rise from $68.2 billion in the first three quarters of 2015.
In contrast, bond issuance from companies got off to a slow start and stood at $207 billion, a 12 percent year-on-year rise.
The sovereign boom was driven by Argentina returning to international markets for the first time since its 2002 default with a $16.5 billion bumper issue. It then tapped markets again and recently held meetings to raise debt in euros.
Qatar's $9 billion bond sale in May, the biggest ever Gulf offering, pushed up the tally.
But that record may soon be surpassed as Saudi Arabia is preparing to make its first foray into international debt markets, with a bond of $10 billion or more.
"We expect fourth quarter to be a strong period of issuance," said Jane Brauer, senior emerging markets sovereign strategist at BAML.
"Investors still have cash to spend, G10 interest rates are low, inflows are still positive and much of the debt service should go back into the market."
Saudi Arabia has been preparing to launch next month, but some Gulf bankers said this might be delayed to give investors time to digest a U.S. Congressional vote that will allow relatives of victims of the Sept. 11 attacks to sue the kingdom.
Emerging bonds have been a hot-ticket item in 2016, with JPMorgan estimating year-to-date inflows to debt funds of close to $50 billion.
On the other hand, corporate bond issuance, which boomed in recent years, was slow over the summer and in early 2016 though there were some bumper deals such as the $16 billion bond from Israel's Teva Pharmaceutical Industries in July.
Volumes picked up towards the end of September.
Hong Kong property group New World Development sold $1.2 billion of bonds drawing orders of over $7 billion this week.
And Brazilian firms largely shut out of bond markets for 18 months thanks to corruption scandals, weak commodity prices and a recession, are back to exploit favourable market conditions. Names range from state oil firm Petrobras to meatpacker Marfrig.
Yet some bigger issuers are still missing from markets, said Dorthe Nielsen, portfolio manager at GAM Investment Management.
Mexican firms are awaiting the outcome of U.S. presidential elections, while Russian corporate issuance remains more or less at a standstill amid economic recession and Western sanctions over its role in the conflict in eastern Ukraine.
The issuance picture looks busier elsewhere and further out, Nielsen said.
"We are seeing a lot out of Asia from investment grade issuers, Chinese financials, and some Korean names as well," she said. "Next year, especially in Asia, we are starting to hit this maturity wall, so likely there will be a lot of new issuance."
Some $1.6 trillion worth of debt is due for repayment in the next five years across emerging markets as a result of a borrowing binge in the period after the 2008 financial crisis.
JPMorgan predicted earlier in September that gross issuance from emerging market firms could be up to $220 billion in 2016 but noted upside risks to its forecast.
The bank expects sovereign issuance of $121 billion this year, slightly trimming earlier predictions.