Last chance grab for yield drives down premiums

Demand for new bonds from the CEEMEA region blossomed in 2024, allowing issuers to tighten pricing on new issues of public benchmark bonds by tens of basis points during execution and to pay much lower new issue premiums than in 2023 as a result.

The average new issue premium paid by emerging market issuers did not top 5bp in any month of 2024. Issuers of all kinds — whether highly rated Gulf sovereigns or sub-investment grade corporates — have printed deals without paying any new issue premium. The average for 2023 was 9bp of premium.

January was the month in which issuers paid the highest average new issue premium, at an average of 4.8bp, offering investors extra juice for the privilege of opening the year’s primary market and getting first access to high liquidity. The premium dropped to just 0.8bp in February, although in March it rose to 3.6bp. The average for the year excluding January was 2.3bp.

The expectation that dollar interest rates would fall drove demand for bonds and the Federal Reserve duly obliged from September onwards. Emerging markets investors and crossover buyers have been keen to lock in high coupons while they still can.

This translated into healthy demand all year. Order book size, on a monthly average basis, never fell below 2.5 times the deal size across EM public benchmark issuance. Demand was highest in the first quarter, at 4.3 times. This was as expected, given that the first quarter is when investors have the most cash to put to work.

Demand slowed going through April-July as investor wallets depleted, averaging 3.1 times over that period.

But September was a stellar month, matching the first quarter in terms of demand — spurred by that first rate cut, which occurred on September 18. Demand averaged 4.3 times deal size, higher than January.

This year-long demand has helped CEEMEA issuers tighten their bonds by hefty amounts from initial to final pricing. The average tightening in euros in 2024 was 32bp. In dollars it was 35bp.

These stellar outcomes were across the board. Issuance this year has been at near record levels and it has not been just the usual faces bringing deals. Up to October 30, there had been $240.5bn-equivalent of new public international bonds from CEEMEA issuers. That is far higher than the $159bn in 2023 and is not far off the $260bn record for annual CEEMEA issuance.

The market for corporate bonds from the CEEMEA region boomed in 2024, with much of the growth down to the return of Turkish issuers to the primary market, after a near total absence from the market in 2022 and 2023. Seven of those Turkish companies to sell bonds in 2024 were debutants.

There were $65.1bn-equivalent of new CEEMEA corporate bonds on the public international markets this year, according to GlobalCapital’s Primary Market Monitor as of October 31. That accounted for 27% of total issuance from the region, up six percentage points from 2023 while nearly doubling in volume terms.

This rise in corporate issuance, coupled with a small jump in the share of financial issuers in the overall CEEMEA supply, meant the portion of total new bond volume accounted for by sovereigns dropped to below half.

Sovereigns made up 48% of new bond issuance in 2024 in CEEMEA, versus 55% in 2023. In volume terms, sovereign issuance was 32% higher this year than last, but that was outstripped by the 89% jump in corporate supply and 58% rise from FIG issuers.