Yield Mania Is Back as Bond Sales Revive in Emerging Markets

LAGOS (Capital Markets in Africa) – Emerging-market sovereign borrowers are returning to international debt markets as the stimulus from central banks cuts borrowing costs and investors chase yields again.

South Africa’s decision to sell Eurobonds for the first time since May last year follow Kazakhstan, Pakistan and Abu Dhabi announcing new issues. That has revived action in a market that saw a seven-week lull amid a resurgence in U.S. Treasury yields and uncertainty over the Federal Reserve’s monetary path.

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 as 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 the 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 plans a two-part deal comprising 10-year and 30-year notes in the 5.25% area and 6.125% area, respectively
• Abu Dhabi is offering $10 billion debt in a three-part deal with the longest note maturing in 2049
• Kazakhstan holds investor meetings today and tomorrow for benchmark-sized notes maturing in 7 years and/or 15 years
• Pakistan seeks bidders to advise on the sale of Eurobonds and Sukuk in the international capital markets

Investors put $900 million in emerging-market bond funds in the week through Sept. 19 amid a”yield mania,” according to a Bank of America Merrill Lynch note. 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 an $815 million long-bond 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.”

Source: Bloomberg Business News