Junk Bond Deals Are Disappearing From Emerging Markets
Not a single bond has been sold by a developing-nation government with a non-investment grade this year.
(Bloomberg) -- The boom times in the emerging-market junk bonds are giving way to a deep freeze.
Not a single bond has been sold by a developing-nation government with a non-investment grade this year. In the corporate world, there’s been a handful of tiny deals, only one coming in above $500 million.
It’s a dramatic turnaround from the previous two years, when investors were clamoring for high-yield debt and companies and governments flooded markets with more than $250 billion in sales.
Now the situation couldn’t be more different. Global markets are in the midst of a Treasury selloff and the threat of a Russian invasion of Ukraine is scaring money managers from riskier markets.
“Countries wouldn’t want to issue at such levels,” said Richard Segal, a research analyst at London-based Ambrosia Capital. “Investors would view such a market approach as desperation, which could cause a bigger selloff.”
And the losses have been steep, with a Bloomberg index of junk-rated emerging-market debt recording its worst start to a year on record. The yield on the benchmark risen 63 basis points in 2022 to 7.87%, just shy of the highest level since July 2020.
A total of $2.1 billion has been raised in 2022, down 89% from last year.
“Levels and the state of the macro backdrop are not super conducive at this juncture for high-yield issuance,” said Rodica Glavan, head of EM corporate fixed income at Insight Investment Management in London. “The reasons are technicals, little inflows, volatile macro and rates and nervy investors.”
The risk premium for emerging-market junk debt now exceeds the five-year average, evidence of the trepidation among investors.
In the investment-grade space, bond sales are coming to market, but there are some signs of stress. Sales total $31 billion this year, a 20% decline from the previous year.
Companies have been forced to cut the size of deals and accept higher borrowing costs. EIG Pearl Holdings raised $2.5 billion, down from the $3.5 billion to $4.4 billion it originally planned. Coca Cola Icecek AS, an Istanbul-based Coca-Cola bottler unit, failed to nudge pricing lower from initial guidance on its $500 million of bonds sold last week.
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