Fear of Biden Chill Adds to Motives for Eurobond Flurry
(Bloomberg) -- There’s a pattern emerging in the latest Eurobond sales from the world’s developing economies -- they’re mostly from countries that may not fare so well when Joe Biden enters the White House.
In the past week, Russia, China, Hungary and several companies from the Middle East have tapped international capital markets, ostensibly to lock in borrowing costs before yields and price swings increase next year. The average yield on emerging-market dollar bonds fell to a record low this week, according to Bloomberg Barclays indexes.
“We are seeing issuance from regions which could be more under stress from a potential Biden presidency,” said Sergey Dergachev, a money manager at Union Investment Privatfonds GmbH in Frankfurt, who helps oversee about 13 billion euros ($15.4 billion) in emerging-market debt. Issuers are looking to place deals while “funding costs and relative volatility are still low,” he said.
The latest to join the flurry is energy giant Saudi Aramco, which kicked off a bond sale Tuesday. The company may raise about $6 billion to help fund a dividend payment, according to people familiar with the matter. Dubai Aerospace Enterprise is also among Gulf corporate issuers tapping the market in November. Dubai Islamic Bank PJSC sold $1 billion of sukuk last week.
The sales underscore how some nations may be rushing to international bond markets before a potential cooling in relations with the U.S. A Biden White House could mean greater scrutiny of human rights and a restoration of diplomatic norms bypassed by President Donald Trump.
Russia sold 2 billion euros of bonds last week in its first dual-tranche offering in the common currency. Russian bonds and the ruble were hit earlier in the year by speculation a Biden win could mean tougher sanctions. Speaking in the last debate before the Nov. 3 vote, the Democrat challenger warned that any country interfering in U.S. elections would “pay a price,” adding that it’s clear Russia has already been involved.
Hungary, which is mired in a spat with the European Union over rule-of-law issues, came to market on the same day as Russia, capping its busiest ever year for sales by offering 2.5 billion euros to help pay debt maturing in 2021.
China is using the “window of opportunity” before the change in U.S. leadership, according to Dergachev. It’s also being spurred by “the fear of more escalation with the Trump administration before Jan. 20,” he said.
Still, some see the debt rush as a testament to low borrowing costs. Emerging-market “credit is currently in the sweet spot,” Trieu Pham, a strategist at ING Groep NV in London said. “Yields are at a historic low for most higher rated emerging-market issuers, but this might change if U.S. Treasury yields start rising.”
Mexico sold $3.625 billion of bonds Monday to extend debt maturities, potentially opening the door for other large Latin American borrowers to take advantage of record low yields in dollars.
U.S. Yield Near 1% Cuts No Ice for Emerging-Market Investors
Meanwhile, higher-quality emerging-market issuers, particularly in Asia, “will navigate 2021 fairly well, supported by strong economic or industry positions and healthy access to capital,” Moody’s Investors Service analysts led by London-based senior vice president Rahul Ghosh wrote in a report on Monday. Governments and companies with weaker credit profiles “will endure another year of liquidity stress and, potentially, deteriorating creditworthiness,” he said.
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