Government deals lift 2016 sovereign emerging bond sales to record high

Emerging governments and companies have raised close to $450 billion on global bond markets in 2016, with sovereign sales hitting record highs, and issuance next year will likely be robust as borrowers scramble to repay maturing debt.
The year got off to a slow start after emerging market assets were roiled by violent selloffs in January. But Argentina’s $16.5 billion deal in April — its first in 15 years — sounded the starting gun for big-ticket deals.
Qatar followed in May, selling $9 billion while Saudi Arabia’s sold a mammoth $17.5 billion in October. Even Russia, under sanctions from the West, managed to raise $3 billion, returning to international markets after three years.
“2016 was dominated by some jumbo jet action in Saudi, Argentina, Qatar, and we will see more jumbos next year, that’s for sure,” said Paul Greer, senior EM debt trader at Fidelity International.
Total bond sales by governments amounted to $128.8 billion in 2016 while net issuance — taking into account maturities — stood at $101.9 billion, or more than double 2015 levels, according to mid-December data from JPMorgan. Next year, JPMorgan expects issuance to total $104.7 billion, but sees net sales falling at $68 billion — a third below this year.
Issuance is likely to increase in coming years due to a sharp increase in debt repayments, as bonds issued after the 2008 crisis start maturing.
Greer said Argentina and Saudi would likely return next year with significant deals, but warned that the overall outlook for emerging markets remains unclear following the election of Republican Donald Trump to the White House.
“Once Trump gets into the White House and we start to get clearer picture of the policies he will proceed with and how the relationship between the US and emerging markets plays out, that will have an important impact on the ability of emerging market borrowers to tap international markets,” he added.
The risk for emerging markets is that Trump’s plans to boost spending further lifts the dollar and US Treasury yields, potentially increasing developing nations’ borrowing costs.
This is not necessarily a disadvantage, given stronger US growth usually feeds through to developing economies, including through commodity prices. — Reuters