Trump spectre hangs over CEEMEA bond market

Volumes of new bonds from the CEEMEA region in 2024 have been close to record highs, with investors feasting on high coupons while issuers took advantage of historically tight spreads. But market participants believe there will be no let-up next year.

By the end of October there had been $240.5bn of new public, international bonds from the CEEMEA region, according to GlobalCapital’s Primary Market Monitor — only $20bn short of 2020, the busiest year ever, based on Dealogic data.

CEEMEA bond syndicate and debt capital markets bankers are optimistic. Nearly a third of respondents to our outlook survey for 2025 predict CEEMEA issuance next year at the same level as this — and 69% think it will rise.

“Liquidity, cash deployment and appetite are all there,” says Khaled Darwish, head of CEEMEA debt capital markets at HSBC. “Bar any major geopolitical volatility, then they also support the continuation of the positive issuance environment next year.”

Bankers highlighted a bumper year for redemptions in 2025 as a driver for issuance. Many of the bonds sold in 2020 during the Covid-19 pandemic had five year tenors, meaning they will need refinancing.

“Much of the activity this year has been refinancing and that trend will continue into next year,” says Iman Abdel Khalek, co-head of CEEMEA DCM at Citigroup.

Redemptions mean $200bn of issuance could already be baked in for 2025.

“I don’t think volumes will change substantially from this year and this year has been close to the peak,” says another CEEMEA syndicate head. “One of the factors feeding into that is that we are looking at a period of huge redemptions; the biggest years for this in history are coming up over the next three years. Because of that we’re going to be well into $200bn, even before you consider opportunistic issuance.”

Another factor driving volumes is that bonds are becoming more attractive than bank finance.

“Issuers now have the opportunity to issue debt at a lower cost than loans, especially in the sovereign side,” says Darwish.

Central bank rate cutting cycles have raised the question of whether issuers will wait for when interest rates might be lower.

But interest rate volatility and the geopolitical blows to emerging market bonds mean 77% say issuers will come as soon as they can next year.

“I haven’t heard an issuer say they are going to wait for rates to come down for a long time,” says Abdel Khalek.

“The playbook that issuers are following is if there’s a funding need, we have seen issuers take risk off the table by going early,” adds Paul Gibbs, head of UK, Europe, Middle East and Africa debt financing and capital markets at Citi. “That’s a universal strategy, not exclusive to CEEMEA.”

This is particularly acute for sovereign issuers, many of which have billions of dollars to raise each year. They do not want to put themselves in a situation where they wait for lower rates and then find that either rates do not fall or that other factors make issuance difficult.

“Borrowers remembered very well how hard things were in 2022 and to a lesser extent 2023,” adds Felix Weiss, head of Citi’s CEEMEA DCM syndicate. “They learned their lesson and printed when they could, rather than when they had to.”

US politics will also play a part after Donald Trump’s victory in the November presidential election. “Trump is widely thought of as unpredictable, so if you want to issue next year, you’re not going to hold off and take unnecessary market risk,” says the first CEEMEA syndicate head. “With spreads already so compressed the only real potential upside is rates coming down and that’s a really tough one to call.”

The lower rate trajectory, for now, means bankers also predict that maturities with lengthen in 2024. Of this year’s new bonds in CEEMEA, 41% were five years or shorter and only 14% were longer than 10 years, according to GlobalCapital’s Primary Market Monitor.

Fifty-four percent of respondents think tenors will lengthen, although a sizeable number predict maturities will stay the same. This is dependent on rates, however.

“Duration should extend, especially if spreads stay tight,” says Darwish. “Investors will want to see 30 year debt, especially from the investment grade issuers.”

The trend has started – Colombia, South Africa and El Salvador, all of which have below investment grade ratings, have sold 30 year bonds in October and November.

Central and eastern European has contributed the biggest share of the year’s issuance in CEEMEA, at just over half, according to Primary Market Monitor. Poland, Romania, Hungary and Turkey are among CEEMEA’s most prolific issuers.

Survey respondents were split on where volumes will head in 2025 for CEE issuers. Nearly half think they will be the same, but 16% think they will fall and 38% believe they will rise.

One very active country for issuance in 2024 was Turkey, with corporates and banks returning in force. Non-sovereign issuance was $17.7bn, by far the busiest year ever.

“There was pent-up supply this year in Turkey after two or three years with very little issuance,” says Ritesh Agarwal, head of DCM at Emirates NBD. “Lots of financial issuers did more than one deal across the capital structure and there were lots of debutants. That is not normal and I think Turkish supply will dip next year.”

The Middle East provided 46% of CEEMEA supply in 2024, according to Primary Market Monitor, nearly all from the Gulf Cooperation Council bloc.

No one who responded to the survey expects a drop in supply in 2025, with half believing it will rise 20% year on year. Some see it growing up to 50%.

“It’s such a big, granular market and I expect it to be busy next year,” says Weiss.

Much of the impetus behind Middle East issuance is oil prices. This year the price of a barrel of Brent crude has been between $70 and $90.

“Unless the oil price rebounds to $100 a barrel, the Middle East will have a large enough deficit to do international funding to pay for ambitious capital expenditure and investments,” says the first syndicate chief.

Away from conventional bonds, sukuk has been a stronghold for Middle East issuers. Of the $111bn of issuance from the Middle East this year, a third has been sukuk.

But new guidelines from the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) could change the sukuk market from a fixed income style instrument to something more akin to an equity-linked product or a securitization.

It may not be a problem for 2025 and the proposals may be watered down, but were AAOIFI to push for the most far-reaching changes, it could radically change the sukuk market.

“If the proposed changes do take place, we are going to quickly see a significant drop in sukuk issuance,” says Abdel Khalek. “As a result, we may see a rush of issuers getting sukuk done before these changes, but nobody knows the timeline of when they may come into effect.”

High interest rates have made issuance very expensive or impossible for Africa’s borrowers. But supply returned this year via five African sovereigns and a smattering of banks and companies.

There have been $8.3bn of new public bonds from Africa this year, far more than the $2.8bn in 2023. The vast majority of bankers, 84% of survey respondents, predict it will rise next year.

“We have seen a return of activity in parts of CEEMEA that have been locked out because of high rates and costs of funding, like Africa,” says Abdel Khalek. “But it is not to the full potential and there will be more of that next year.”

“Africa has reopened, but it’s been very specific so far,” adds the first head of syndicate.

The new public sovereign bonds came from the strongest African issuers, such as Ivory Coast and Benin. Some of the continent’s largest issuers, such as South Africa, Nigeria and Egypt, were absent in part due to price sensitivity.

“Most have market access now,” continues the head of syndicate. “It’s just a case of whether they want to pay the yields. But the context of the conversation has changed — they now have a choice.”

Rate volatility has been the bogeyman for emerging market bonds in recent years. Sixty-nine percent of respondents think US rate volatility is the biggest threat to CEEMEA bond issuance in 2025.

The US Federal Reserve started cutting interest rates in in September. But Trump’s election win has muddied the optimism over more cuts. Some of his expected policies, especially the imposition of tariffs on imports, are regarded as inflationary and US Treasury yields were volatile in the run-up to the election as the market priced the possibility of a Trump win.

A return to rising inflation would mean central banks may have to slow or halt rate cuts or even start raising rates again.

“One potential thing that could derail next year is if central banks start reversing what they’re doing,” says the first syndicate head. “If we see inflation moving further away from the target level, that could start to cause issues.”

Geopolitics was the next most popular choice as a threat to issuance next year, picked by 15% of respondents. Israel’s war against Hamas has spread to Lebanon and Hezbollah, raising the risk of confrontation with Iran. And the war in Ukraine rumbles on, although Trump has promised to end it.

“Geopolitics is still a big threat for our market,” says Weiss. “It has materially impacted issuance patterns in the last two years. Geopolitics may not impact total issuance volumes materially, but it will impact issuance across some subsets of the market.”

ESG-labelled issuance made up 23% of new CEEMEA bond volume in 2024, according to Primary Market Monitor. The year before, the figure was a little higher at 26%.

“ESG discussions are part of every roadshow now,” says Agarwal, “whether the planned issue has a label or not. Investors want to know what the ESG strategy is. That issuance will keep growing, we will see new issuers doing ESG bonds, although it will not be a dramatic rise.”

But there are two ESG products that are still rare and that bankers expect to grow, even though they will not become staples: sustainability-linked bonds (SLBs) and debt-for-nature swaps.

“There’s significant appetite for debt-for-nature swaps but also increasingly SLBs on a very selective basis,” says Alexis Taffin des Tilques, head of CEEMEA DCM at BNP Paribas. “But SLBs are something that are done once you are a mature ESG issuer. There are still very few that can do it.”

Debt-for-nature swaps are also a product usually available only to a narrow group of issuers, namely those in debt distress. Gabon is the only CEEMEA sovereign to have done one, which was in 2023.

“They take a lot of time to arrange and structure,” says des Tilques. “But it’s important for this product to do well so that the candidates that come through really make sense and are indisputable. Some have so far, others haven’t.”

The positive outlook for 2025 means bankers are confident their staffing numbers will not change at least. Only 15% of respondents think team sizes will shrink.

And similarly, few bankers see bond houses dropping out of the CEEMEA market. An equal number of respondents predict little to no change or new banks entering the market.

Elsewhere, just over half of bankers predict a positive year for the main EM benchmark indices. Of the respondents, 54% predict they will end 2025 higher than the start of 2024, although a significant minority see them lower.

Part of the wider optimism for EM is that we have seen the worst of defaults. The interest rate surge in 2022 led many to predict a wave of them, which did not materialise.

Just over three-quarters of respondents, at 77%, do not think default rates will rise in 2025 versus 2024. This echoes what many EM fund managers said in the autumn – that the worse is behind us and, for now, there are no defaults looming.