Emergency-market bond sales surge ahead of Fed tapering

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Emergency-market bond sales surge ahead of Fed tapering

Bloomberg - Emerging-market bond sales are springing back to life before this week's Federal Reserve meeting, as renewed speculation about imminent tapering prompts investors to raise money while it s still cheap.

The past week shattered a summer lull for dollar and euro-dollar-denominated debt, sending $36 billion of issuance from governments and companies after the previous 10 weeks raised only $90 billion. Sales from Indonesia, Turkey, Hungary, Spain and Indonesia were all met with robust investor demand. Nigeria is due to start investor calls on Monday, while Middle Eastern borrower Arab Petroleum Investments Corp. is gearing up for its first dollar-bond sale in almost three years.

The deluge marks a turnaround for a market in which sales had dropped to the slowest quarterly pace in three years due to a seasonal dip, as well as spasms in the corporate-debt market related to China Evergrande. A record pipeline of refinancings and renewed speculation about Fed tapering have created a sense of urgency.

It is going to pick up pretty fast from now and the fourth quarter will be high, said Nick Eisinger, co-head of emerging-markets active fixed income at Vanguard Asset Management in London. Many countries have yet to finance and some are going to pre-finance next year, especially before the Fed tapering. Governments and companies in the developing world have some $102 billion in debt maturing for the rest of this year and a further $389 billion next year. This would leave investors cash-rich and eager to reinvest in emerging markets as long as they offer attractive extra yields over U.S. Treasuries.

We would buy new debt and we're in a position to do so, Eisinger said.

The northern hemisphere summer is typically a slow period for bond sales, but this year governments had even less motivation to borrow as the International Monetary Fund released funds and oil prices rose. Isssuing was totaling $127 billion in this quarter, down from $161 billion in the same period last year.

Now that Fed tapering may be nearing, borrowers are taking no chances, raising money before yields rise.

Isssuance will go higher notably before quarter-end across regional markets due to strong markets and strong investor liquidity, said Stefan Weiler, the London capital markets head for central and eastern Europe, the Middle East and Africa at JPMorgan Chase Co. October will also be busy. Serbia sold the first Green Bond from the Balkans, while Poland - MBank SA raised 500 million euros $586 million to become the first Polish lender offering a euro-denominated green bond. Nigeria, expected to hire $3 billion in the 2nd week of October, has already filled banks with unproductive results.

There is borrowing renewal in Asia. China has an oversized impact on the new issue calendar, said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. However, issuance of higher yields suggests that the fallout from Evergrande may be contained. Sinochem Group issued debt after the stock market closed last week.

Middle Eastern borrowers, known for larger than average sales, are also jumping into the market. Apicorp, also known as Arab Petroleum Investment Corp., has mandated banks to arrange a series of fixed-income investors calls from 20 September.

We expect a strong pipeline for the rest of the year and expect volumes to match or exceed last year, said Hitesh Asarpota, managing director, head of loan syndications and debt capital markets at Emirates NBD Capital, Dubai s biggest lender.

What are the things that you should watch for this week:

Brazil s central bank is expected to lift the Selic benchmark by 100 basis points to 6.25%, even after Banco Central do Brasil president Roberto Campos Neto surprised investors last week by saying that officials won t change their plans every time fresh data come out. While the bank has boosted rates by 325 basis points this year, Turkey's monthly inflation surged to a five-year high in August with the rate approaching a faster-than-expected 10% The annual rate setting meeting of Brazil's central bank in July will be held on Thursday. In August the inflation jumped, raising the real interest rate to a negative 25 basis points and posing a further challenge for central bank Governor Sahap Kavcioglu. He s pledged to keep the benchmark above inflation but has faced calls from President Recep Tayyip Erdogan to deliver a rate cutThe South African Reserve BankAfrican Reserve Bank will probably bring rates down on the same day, overlooking what s set to be a temporary breach in inflation Still, the statement may turn more hawkish in line with still elevated inflation risks and the expectation of higher U.S. rates, Bloomberg Economics said in a report. That increases the prospect of a rate hike in 4 Q Four central bank meeting are scheduled for Indonesia, Pakistan, Philippines and Taiwan in the coming week. All the groups are expected to keep their benchmark rates unchanged.