The Euro Has Never Been This Popular With Emerging-Market Borrowers
The Euro Has Never Been This Popular With Emerging-Market Borrowers
(Bloomberg) -- The euro’s popularity as a borrowing currency is surging in emerging markets, with annual sales of government bonds crossing the 50-billion mark for the first time ever.
Sovereign issuers have raised 51.2 billion euros ($56.4 billion) so far in 2019, according to data compiled by Bloomberg. With seven weeks to go before year-end, that already beats the previous record of 39.9 billion euros collected over the whole of 2016.
On a year-to-date basis, that marks an 80% increase in new-bond issuance. Compare that with the 2.7% growth in dollar-bond sales and it’s clear the euro is eating into the U.S. currency’s market share.
“Lower yields in Europe are the main attraction,” said Anders Faergemann, a senior portfolio manager at Pinebridge Investments in London. “Given the European Central Bank’s monetary-policy outlook, we can safely say this will continue in 2020, though I wouldn’t expect the same acceleration we are seeing now.”
While the U.S. currency remains the top choice of emerging-market governments, euro-denominated securities now account for 30% of their borrowing abroad. That’s up from 21% in 2013.
The ECB has taken its most-watched deposit rate to minus 0.5%, anchoring the ultra-low rate regime in the euro area. The 10-year bund offers minus 0.26%, compared with just under 2% for Treasuries.
Economists predict the central bank will take its deposit rate even lower next year and keep it negative at least until 2022. It resumed quantitative easing this month, with a pledge to buy 20 billion euros ($22 billion) of debt each month for as long as necessary to hit its inflation goal.
Flows into emerging-market debt funds reached $36.3 billion this year, according to Bank of America Merrill Lynch citing EPFR Global data, as sub-zero yields in core European markets pushed institutional investors into buying higher-yielding debt from developing nations.
Sovereign sales of euro-denominated bonds, which had stalled in July-August, were revived in the fall as sovereign issuers from Kazakhstan to Ivory Coast came to the market. The trend has accelerated this month with China collecting 4 billion euros and Serbia raising 550 million euros. And Morocco is considering a benchmark-sized offering with a 12- or 20-year maturity.
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--With assistance from Selcuk Gokoluk.
To contact the reporter on this story: Srinivasan Sivabalan in London at ssivabalan@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Alex Nicholson
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