By David Oakley
Published: July 26 2009 20:09
Emerging market bond issuance has risen to record levels as investors hungry for greater risk switch to the securities because of attractive yields.
The surge in issuance this year, to its highest since records began in 1962, is an encouraging sign for the world economy as activity in emerging market bonds had seized up until a few months ago.
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The bond market freeze had made it difficult for governments and companies, especially those in eastern Europe hit by the credit crunch and needing to refinance debt.
Bond volumes in emerging markets have risen to $352bn so far this year, according to Thomson Reuters, up 45 per cent on the same period in 2007 before the financial crisis.
July, typically a slower month as investors wind down for the summer holidays, has been the second highest for new volumes, with issuance rising to $60bn.
China has been the biggest issuer this month, but countries such as Poland and Hungary have been able to tap markets.
Hungary, which was forced to turn to the International Monetary Fund for financial support, this month launched its first international bond since June 2008.
Bankers said the pick-up in bond yields had been a big factor in attracting investors.
Yields on emerging market sovereign bonds, measured by JPMorgan’s Embi Index, are nearly 2 percentage points higher than those on single A rated US corporate bonds.
Poland, rated single A, offers investors a yield that is 1 percentage point higher than that for a single A corporate, such as Oracle, the US technology group.
Bryan Pascoe, global head of debt syndicate at HSBC, said: “Although emerging market bond spreads have narrowed, they still offer a lot of value compared with developed market corporate spreads, with better credit fundamentals in many cases.”
Shahin Vallee, emerging market strategist at BNP Paribas, said: “From an investor’s point of view, it does make sense to buy emerging market bonds because there is a safety net.
“Since the G20 [group of nations] committed extra money to the International Monetary Fund in April, it has become clear that the governments will not let an emerging market country default.
“You do not have that guarantee with US corporate bonds.”
Other big issuers this month include Brazil, South Korea, Russia and some of the Gulf states.
Copyright The Financial Times Limited 2009
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