Yield Mania Is Back as Emerging-Market Bond Sales Pick Up

(Bloomberg) -- Emerging-market sovereign borrowers are returning to international debt markets as stimulus from central banks cuts borrowing costs and investors chase yields again.

South Africa’s biggest ever Eurobond offering and Abu Dhabi’s $10 billion blockbuster on Monday follow Kazakhstan and Pakistan announcing plans for new issues. Bahrain and the Islamic Development Bank are offering dollar-denominated Sharia-compliant bonds on Tuesday, and Ecuador said the same day that it will sell sovereign debt.

The sales have revived a market that just experienced a seven-week lull amid a resurgence in U.S. Treasury yields and uncertainty over the Federal Reserve’s monetary path.

Now the clouds seem to have lifted. The premium dollar-bond issuers are asked to pay over Treasuries has dropped as much as 28 basis points from an eight-month high three weeks ago after the Fed cut rates and the European Central Bank announced bond purchases to support the continent’s slowing economies.

“We are in this kind of sweet spot in which spreads are still relatively high to make it attractive to investors, but yields are relatively low for issuers,” said Jean-Charles Sambor, the deputy of head of emerging-market fixed income at BNP Paribas Asset Management in London. “We would not be surprised to see even more sovereigns and corporates attempting to issue in the foreseeable future.”

Offering details

• South Africa raised $5 billion from its first sale since May 2018
• Abu Dhabi’s $10 billion sale was a three-part deal with the longest note maturing in 2049
• Bahrain’s offering includes Sharia-compliant securities due 2027 and a conventional bond due 2031
• Islamic Development Bank offers benchmark-sized dollar sukuk
• Kazakhstan started investor meetings on Monday, which may lead to the sale of benchmark-sized notes maturing in seven years and/or 15 years
• Pakistan is seeking bidders to advise on the sale of Eurobonds and sukuk in international capital markets
• Ecuador is selling dollar-denominated 5- and 10-year bonds, with yields expected in the high 7% range and mid-9% range, respectively

Investors put $900 million into emerging-market bond funds in the week through Sept. 19 amid a “yield mania,” according to Bank of America Merrill Lynch. Buyers of dollar bonds are having a good year, pocketing an 11% return, a Bloomberg Barclays index tracking developing-nation debt showed.

The first half of September saw no borrowing by developing-nation governments apart from a $815 million tap by Jamaica.

“It is just cheap to borrow now,” said Paul McNamara, a London-based fund manager who helps oversee $9.4 billion in assets at GAM UK. “This is the result of an epic rally we have seen in emerging-market bonds after the decline in core rates.”

To contact the reporter on this story: Selcuk Gokoluk in London at sgokoluk@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Srinivasan Sivabalan, Justin Carrigan

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