Borrowers in developing nations are flooding markets with a record amount of bonds before reductions to Federal Reserve monetary stimulus spur funding costs.
International sales in emerging markets are up 13 percent to $51.5 billion so far in January, the busiest start to a year since Bloomberg began tracking the data in 1999. Petroleo Brasileiro SA, Latin America’s largest oil producer, raised the most debt among 94 issuers with a $5.1 billion offering of euro- and pound-denominated securities. Mexico, Indonesia and energy company Petroleos Mexicanos each sold $4 billion of debt.
Companies and governments in developing countries are seeking to pre-empt any rise in borrowing costs that could result from the next round of the so-called tapering by the Fed. U.S. policy makers decided last month to trim monthly bond purchases by $10 billion to $75 billion. They will keep cutting stimulus in $10 billion increments at each Federal Open Market Committee Meeting, the next of which takes place Jan. 28-29, according to a Jan. 10 survey of economists by Bloomberg.
“Issuers want to tap the market now as they fear that Fed tapering and a rise in U.S. Treasury yields will lift their own funding costs,” Regis Chatellier, a London-based director of emerging-markets credit strategy at Societe Generale SA, said by e-mail on Jan. 15. “They simply don’t want to take that risk. So I expect new issuance to remain strong, for now.”
The yield on the Bloomberg U.S. Dollar Emerging-Market Composite Index, which includes sovereign and corporate bonds, surged about 1.25 percentage points within a month of Fed Chairman Ben S. Bernanke first bringing up tapering plans on May 22. The yield fell two basis points today to 5.14 percent by 10:21 a.m. in London, the lowest in two months.
The jump in developing-country bond sales comes as global issuance declined 11 percent this year to $266 billion, data compiled by Bloomberg show.
Petroleos Mexicanos, the state-owned oil company known as Pemex, raised $4 billion yesterday, including $3 billion of 30- year bonds, a record for an emerging-market corporate issuer.
Eastern European governments have been the 10 biggest borrowers this year, with Poland, Slovakia and Romania selling at least $2 billion each. Romania plans to issue euro- denominated debt in the first half of this year, Budget Minister Liviu Voinea said yesterday.