Bond issues and mandates from the emerging markets of EMEA have been coming thick and fast in the last week — startling, considering that interest rates have been shooting up in a decidedly non-borrower-friendly manner.
CEEMEA bond specialists’ reflex was to see this as a harbinger of doom.
In the past, bond prices plunging as they have in the 10 year US Treasury market this week would have shut EM new issuance down. Certainly yields crossing a big psychological barrier such as a whole number — 5% this week — would have made borrowers run away and hide.
So the fact that there has been a rush of CEEMEA issuers to the market instead has been alarming.
Saudi sovereign wealth fund Public Investment Fund, Polish development bank BGK and Abu Dhabi’s Mamoura have all issued, and a flurry of mandates have shown up, some, like Uzbekistan’s Agrobank, delayed from earlier this year.
Do the highly educated and experienced people running these funding teams and advising them think US rates are going to get much higher still?
Are some issuers quietly under such funding pressures that it is better to take the money now, even in such a bad week?
But as much as the spate may suggest issuers fear worse to come, this is only part of the story.
First, EM issuers are typically an inflexible group when it comes to pricing bonds.
Because of the layers of bureaucracy within these institutions — sometimes involving the government and capital markets boards — they prefer to pick a week or month to print and stick to it.
One of the leads on PIF’s deal said this was one of the reasons it went ahead with its sukuk last week, despite the tensions in the Middle East ramping up.
Second, issuers may not be bringing deals forward so much as pushing them back.
Bankers said in September they were expecting one or two deals a week for the rest of the year. But because of the eruption of the Israel-Hamas war on October 7, several of those did not appear when planned.
Instead, they got bunched up to the week we’ve just had when even US Treasuries swinging like a bored 1970s married couple couldn’t deter them any longer.
Third, while issuers do care about rates, some also look very closely at spreads. Despite the volatility, those are exceptionally tight for some issuers at the moment, especially in the Middle East.
And some borrowers are such regular funders that it makes sense for them to take the rough with the smooth, rather than trying to time the market perfectly.
That such a volatile week should be packed with CEEMEA new issues is unusual. But it is only partly a flight from the Ghost of Christmas Yet to Come.