The January borrowing figure surpasses a previous peak of $33 billion raised in January 2018, according to data compiled by Morgan Stanley.
The figure represents 31% of the total issuance the bank expects for emerging market economies this year. The sales frenzy comes after investors were sitting on piles of cash amid rising global interest rates and with many smaller, riskier emerging economies locked out from international markets.
"U.S. inflation below 8% was the trigger," said Alexis Taffin de Tilques, head of debt capital markets CEEMEA for BNP Paribas, referring to data released in November showing the annual reading had dipped below 8% for the first time in eight months, opening the door for the U.S. Federal Reserve to scale back its hefty interest rate hikes.
China loosening COVID-19 restrictions, the U.S. inflation reduction act and a "less expected recession in Europe" were three accelerators, de Tilques added, stressing "markets have been extremely active since the beginning of the year." Nearly $40 billion of debt sales came in the first half of the month when Hong Kong, Israel and Mexico all raced to issue debt early, with Colombia and Serbia soon following suit. So far, investment-grade-rated Saudi Arabia is the largest borrower, having sold $10 billion of dollar bonds this year. How long the window for emerging market issuers will stay open remains to be seen.
Eric Fine, head of active EM debt management at VanEck, predicts challenges could come from the developed world, potentially through a "harsh U.S. recession" that could blow out credit spreads or spark a selloff in risk-free rates which could hit all bonds. "That leaves emerging markets as either the best place or the least bad place," he added. "Not a bad choice." Romania's finance ministry told Reuters that having covered a third of this year's financing needs in January, Bucharest would take a break from issuing Eurobonds until the second half, focusing on local currency borrowing instead.
Morgan Stanley expects more high-yield countries to take advantage of "lower yields and high demand" after Turkey issued $2.75 billion and Mongolia tapped markets for $450 million in January. Potential riskier issuers include Oman and Uzbekistan. "Once trading on the secondary market, these new issuances have all outperformed," said Morgan Stanley strategist Simon Waever. In Latin America, Chile, Panama, Peru and Uruguay are investment-grade issuers that could come soon. Brazil said it plans to issue its first-ever green bond in 2023, citing a link to sustainable agriculture and energy transition as examples. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Emerging markets start 2023 with record debt issuance ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Jorgelina do Rosario, additional reporting by Susan Mathew, editing by Karin Strohecker and Diane Craft)
