02/04/2015 04:27 AST
The emerging-market bond rush that’s made the beginning of 2015 the second-busiest quarter in a decade for sales in euros is just getting started, courtesy of the European Central Bank’s stimulus drive.
Governments and companies across developing nations raised €20bn ($21.5bn) this year, with 59% of the total coming in March as the ECB embarked on an unprecedented bond-buying plan, according to data compiled by Bloomberg.
Europe’s €1.1tn quantitative-easing programme is luring emerging-market issuers after the benchmark cost of borrowing in Europe’s shared currency fell to a 26-year low relative to the dollar last month. That discount will ensure the pipeline of offerings will remain active at least through the end of 2015, according to Barclays.
“We are at the beginning of many quarters of euro issuance in emerging markets being higher than they have been historically,” Aziz Sunderji, a credit strategist at Barclays, said by phone from New York on Monday. “The driver is lower yields in euros, and that is caused by the ECB and weaker economic environment in Europe compared to the US”
Euro-denominated bonds will make up 40% of emerging- market sovereign bond sales this year, compared with 27% in 2014, according to Regis Chatellier of Societe Generale. The bank helped organise an offering in Bulgaria, the biggest in the first quarter in emerging markets.
The eastern European country raised €3.1bn from the sale of seven-year, 12-year and 20-year bonds, its longest- dated securities ever on March 19.
Poland issued 1bn euros of May 2027 notes on Monday at a record-low yield of 1.02%. That compares with a 2.73% rate the same day on January 2024 dollar debt, according to data compiled by Bloomberg. Emerging-market issuers sold $60bn of dollar- denominated debt, three times more than in euros in the first three months of the year, data compiled by Bloomberg show.
“It makes a lot of sense to issue in the euro as spread levels are much tighter than in the dollar space,” Chatellier said by e-mail on Tuesday. “For European investors, the interest-rates risk is also lower due to the ECB” stimulus, he said. Companies from China to Mexico have sold debt in euros since ECB chief Mario Draghi announced the stimulus programme in January. China Construction Bank Asia Corp raised €500mn in an offering of February 2020 bonds. Emirates NBD PJSC, Dubai’s biggest publicly traded lender, issued 550mn euros of seven-year notes at a yield of 1.77%, and Mexican cement maker Cemex SAB sold the same amount of bonds due March 2023 at a rate of 4.375%.
Even as the appeal of issuing bonds in euros is likely to continue during the ECB’s stimulus programme, “the market’s attention remains fixed” on the Federal Reserve, Zsolt Papp, a money manager at JPMorgan Chase & Co in London, said by e-mail. Fed Chair Janet Yellen said on March 27 she expects the central bank to raise borrowing costs this year and that subsequent increases would be gradual.
The yield on 10-year Treasuries was 1.92% on Tuesday, compared with 0.2% for German bunds. The average cost of borrowing in euros was 0.92% on Tuesday, seven basis points above an all-time low on March 10, according to the BofA Merrill Lynch Euro Corporate Index.
“Now many traditional European real-money investors have cash to deploy outside of Europe, away from the typical western European investment-grade issuers,” Souhail Mahjour, who works at the emerging-market bond syndicate of HSBC Holdings, said by phone from London March 23.
Bloomberg
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