Sunday, January 11, 2009

Bond issuance surges as emerging nations see window of opportunity

--Emerging see the improved sentiment as a window of opportunity --They fear they could be crowded out of the primary bond market by the record volume issued by developed markets. By David Oakley in London, Roel Landingin in Manila and,John Aglionby in Jakarta Published: January 9 2009 02:00 Last updated: January 9 2009 02:00 Emerging market sovereign bond issuance has surged this week as governments take advantage of the dramatic drop in yields because of the sharply improving sentiment since the start of the year. The Philippines, Turkey, Brazil and Colombia have all issued debt in the past few days, raising a total of $4.5bn. This compares with just one deal worth $2bn from Mexico issued in the entire fourth quarter of 2008. Nigel Rendell, senior emerging markets strategist at RBC Capital Markets, said: "Sentiment has improved a great deal since January 1 in the emerging market space, so these countries see this as a window of opportunity to issue debt." Since January 1, emerging market bond yields have fallen about 40 basis points compared with US Treasuries, the international benchmark for debt, close to eight- week lows, according to JP Morgan's Embi+ index. Emerging market bonds are now trading about 650 basis points above US Treasuries. Emerging market governments are also rushing to issue debt as they fear they could be "crowded out" of the primary bond markets because of the record volumes of sovereign debt due from the industrialised nations. These emerging market countries need the cash, like their industrialised counterparts, to stimulate their economies. However, most analysts believe the rally in emerging markets may be short-lived as economies around the world slump deeper into recession. Mr Rendell said: "The emerging market economies are unlikely to revive in any substantial way during the course of the year. "There is still more bad news out there for emerging markets." The Philippines and Turkey sold bonds yesterday. The Philippines raised $1.5bn in 10-year paper, while Turkey issued $1bn for bonds maturing in 2017. Brazil and Colombia both raised $1bn in 10-year bonds on Tuesday. The Philippines, one of Asia's biggest sovereign borrowers outside of Japan in the past few years, has not issued global bonds since selling $500m of notes in January last year because of high borrowing costs. Its deal, which was four times subscribed, is significant as it could prompt other Asian countries, such as Indonesia, to take advantage of the fall in borrowing costs. Sri Mulyani Indrawati, the Indonesian finance minister, said this week she was confident about international interest in her country's sovereign bonds. Similarly, the Turkey deal could also encourage other eastern European countries to raise debt. Commerzbank forecasts eastern European countries may issue at least $3.5bn in the next month. Conversely, the industrialised nations of Austria and Ireland were both forced to pay higher yields than existing bonds to issue debt yesterday. Ireland raised €6bn in five-year paper, while Austria raised €3bn, also in five-year paper.

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