Emerging-market borrowers completed the busiest ever start to a year, selling $195 billion of bonds on international markets to secure funding while interest rates in the US and Europe stay at all-time lows.
Governments from Turkey to Hungary and companies including Banco do Brasil boosted offerings above last year’s record for a first quarter by $23 billion, according to data compiled by Bloomberg from 1999. With developing economies growing more than twice as fast as advanced nations, issuers such as Braskem and United Microelectronics said they plan further bond sales to raise at least $11.5 billion.
“This is a pretty good time to be borrowing, absolute rates are low and prospectively rates are going up,” Ian McCall, who helps oversee about $500 million of emerging-market debt as a director at Argo Capital Management in London, said in a phone interview. “So if you’re thinking of borrowing at some point in say the first three quarters of this year, you’d probably want to frontload that.”
Sales are surging after near-zero global interest rates and the Federal Reserve’s quantitative easing fuelled the biggest investor flows to emerging-market debt on record in 2010, based on data from EPFR Global. Turkey sold $1 billion of 30-year bonds on January 5 at its lowest yield for the maturity, at 6.25 per cent. Hungary, the European Union’s most-indebted eastern member, met about 67 per cent of its annual bond issuance target on March 24 by raising $3.75 billion in its largest foreign debt sale.
‘Pretty good’
The Fed should review whether to wind down its second round of quantitative easing, the policy of buying Treasuries dubbed “QE2,” because “the economy is looking pretty good,” Fed Bank of St. Louis President James Bullard said on March 26. An end to the stimulus measure would be a move toward a policy of monetary tightening that would eventually include raising interest rates, Bullard said.
The yield on two-year US Treasuries has risen to 0.78 per cent from 0.33 per cent on Nov. 4, the lowest since the Bloomberg data series began in 1976, amid signs the US economy is recovering. Gross domestic product grew 3.1 per cent in the fourth quarter, the Commerce Department said March 25. Growth for the period was estimated at 2.8 per cent a month earlier.
European Central Bank (ECB) President Jean-Claude Trichet said on March 3 that “an increase of interest rates” was “possible” when policy makers next meet in April. The bank kept its benchmark rate at a record-low 1 per cent.
India Railway
“It’s great for these guys to get their bonds out the door today rather than later so they can lock in the Treasury yield,” Scott Bennett, the head of Asian credit at Aberdeen Asset Management, which oversees $287 billion globally, said in a phone interview from Singapore yesterday. Bennett said he subscribed to a $200 million bond sale by India Railway Finance Corp this week.
Sales of developing-nation debt in all of 2010 reached an all-time high of $710 billion.
The pace of government borrowing may slow as debt costs increase and the recovery in developing economies cuts the need to finance deficits, said Rajeev de Mello, who helps oversee $454 billion as head of Asian investment in Singapore at Western Asset Management, the Pasadena, California-based fixed-come unit of Legg Mason Inc.
Rouble sale
Russia has no need to borrow internationally after higher oil prices boosted government revenue, Deputy Finance Minister Dmitry Pankin said in an interview in Moscow on March 16. The government raised 40 billion roubles ($1.4 billion) in its first international sale of debt in its own currency on February 24.
The Philippines, which sold $1.5 billion of 15-year dollar debt on March 22, had its second budget surplus in three months in January as spending fell, tax collection beat targets and dividends from state agencies boosted revenue, the government said on March 15. Improving finances in the Philippines should reduce its borrowing needs, de Mello said.
“Issuance won’t be going up all that much,” de Mello said. “The sovereigns are getting higher-than-expected revenue.”
Developing nation yields, which fell to a low of 5.3 per cent in November, climbed to 6.3 per cent on March 29 as Fed policy makers weigh the first steps toward monetary tightening, JPMorgan Chase & Co’s EMBI indexes show.
The yield on Turkey’s 30-year bonds has risen to 6.49 per cent since the January sale. Turkey is rated Ba2 by Moody’s Investors Service, the second-highest junk rating.
Hungary could have sold triple the amount based on the orders received, according to an e-mailed statement from AKK, the debt management agency.
Brazil bank
Banco do Brasil, Latin America’s biggest lender by assets, issued ¤750 million ($1.06 billion) of bonds due 2016 in January. The yield has risen 37 basis points since it first traded to 4.8 per cent today. The Brasilia-based lender’s yield is still lower than London-based Lloyds Banking Group, Britain’s biggest mortgage lender, whose euro-denominated bonds due in 2014 and first sold in 2002 yielded 5 per cent yesterday.
Both banks are rated Baa2 by Moody’s, its second-lowest investment-grade ranking.
Mutual funds seeking higher yields plowed $53 billion into developing-nation debt in 2010, more than any other year on record, according to Cambridge, Massachusetts-based EPFR.
