(Bloomberg) -- Emerging-market borrowers crowded into the bond market Monday in the busiest day for sales of such debt this year, as a range of issuers jumped at the opportunity to lock in lower yields after a rally in benchmark US Treasuries.
Governments from Costa Rica and Uruguay to Turkey and Bulgaria, and corporations including Colombia's power company Grupo Energía Bogotá, Korea National Oil and Abu Dhabi Islamic Bank, were among at least 10 issuers that tapped the bond market, taking advantage of revived risk appetite after US employment data on Friday showed cooling jobs growth.
“It is a direct consequence of the improved tone in markets last week, capped by the softer-than-expected US payrolls data on Friday,” Graham Stock, senior emerging-market sovereign strategist at RBC Bluebay, said via message. “Issuers that have been waiting for an opportunity to come to market have grabbed this window with open arms.”
Emerging markets jolted awake after weeks of doldrums, during which borrowers have grappled with rising interest rates and added uncertainties surrounding the Middle East conflict. Now, after the Federal Reserve left interest rates unchanged at its November meeting and US jobs data unexpectedly cooled, the market is getting a boost from expectations that US rates will peak soon.
“After an unusually quiet October for EM primary markets amid a volatile global backdrop, EM issuers now look to be taking advantage of the broad-based rally seen last week to issue in what is likely the final window before an expected lull in December,” said James Wilson, EM sovereign strategist at ING Bank. “Active deals and new mandates have been announced across a wide spectrum of credit ratings and regions, in both the EM sovereign and corporate space.”
Small Window?
It may be a small window of opportunity, given the unsure outlook for US inflation, according to Sebastian Vargas, head of Latin American credit strategy at Barclays Plc.
“There's uncertainty about how long it will last and because many had decided not to issue in October, but many can't postpone issuance for too long given financing needs,” said Carlos de Sousa, an emerging-markets money manager at Vontobel Asset Management AG in Zurich.
Costa Rica is selling $1.5 billion of dollar bonds with a 31-year maturity, to yield 7.75%. The Central American nation scored two upgrades from credit-rating companies in recent weeks.
Uruguay is selling more of its sustainability-linked notes due in late 2034, paying a 5.75% coupon. The bonds were trading at 101.3 cents on the dollar Monday after falling 1.4 cents, the most since they were first issued in October 2022, according to indicative pricing data compiled by Bloomberg.
Many Latin American issuers with refinancing needs had been waiting for rates to go lower, according to Kathleen Monticello, credit analyst at Pinebridge Investments Latin America.
Elsewhere, Bulgaria took the opportunity to offer a total of €2.3 billion euro-denominated bonds in a sale that may price on Monday. The new bonds, maturing in 7.5 and 12.5 years, respectively, both received demand more than twice the size of the offerings.
“It remains to be seen how well a further wave of supply could be absorbed by the market, given the persistently weak technical backdrop of outflows from EM bond funds in recent months,” ING's Wilson said.
--With assistance from Giovanna Bellotti Azevedo.
(Updates with Costa Rica's deal guidance in eighth paragraph, investor quote in tenth. A previous version of this story corrected a reference to US jobs data in fourth paragraph and the maturity for Costa Rica's bond sale in the eighth.)
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