Macro Analysis /
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EM sovereign bond issuance fell 15% in 2021; rising US yields story so far ytd

  • EM hard currency sovereign bond issuance fell 15% last year to US$173bn, although still second highest amount on record

  • Issuance stalled in the final month of the year, at just US$0.4bn, the lowest monthly amount since the pandemic

  • Rising US bond yields (+25bps ytd) is the story so far this year, which could dent issuance in the near term

EM sovereign bond issuance fell 15% in 2021; rising US yields story so far ytd
Stuart Culverhouse
Stuart Culverhouse

Head of Sovereign & Fixed Income Research

Tellimer Research
11 January 2022
Published by

EM hard currency sovereign bond issuance fell to US$172.7bn last year, 15% below 2020's record level, based on our calculations using data from Bond Radar, as issuance in December slumped to its lowest amount since the pandemic (and likely its lowest monthly rate for some time).

Sovereign issuance was just US$443mn in December, due to tighter EM financing conditions on the back of concerns over the US rate outlook and the omicron variant (in fact, total sovereign issuance in the month was higher, at US$2.4bn, but we exclude from our definition the EUR600mn from Latvia and the US$1281mn (equivalent) in Chile's peso-denominated issue. This left only the US$443mn five-tranche offer from Uruguay, and that was in Yen). December's volume marked a fall of 96% both on a mom and yoy basis. It was lower than the previous post-pandemic low of US$620mn in August.

EM hard currency sovereign bond issuance by month*

As a result, Investment Grade (IG) issuance was the only issuance in the month and, indeed, it accounted for the majority of issuance during the fourth quarter. In Q4, IG accounted for 82% of total issuance, with High Yield (HY) comprising 14% of issuance. The remaining 4% was from crossover.

The fall in issuance compared to 2020 may be a bit of surprise given the strong start to the year last year, after a record January and strong primary activity throughout Q1, although the pace of issuance fell behind the previous year by April and, while it closed the gap by October, it never really recovered. As we noted in December's monthly wrap-up, issuance was unlikely to catch up with last year's level.

Much of the shortfall, however, was due to lower Investment Grade (IG) issuance, which was 18% below the previous year. High Yield (HY) on the other hand was 2% higher in 2021 than in 2020 (crossover was 66% lower but at much lower volumes anyway). For the year as a whole, IG accounted for 63% of total issuance, HY was 35% of issuance and crossover was 2%.

Cumulative issuance compared - 2021 vs 2020 (US$ bn)

Still, despite the fall, sovereign issuance was still high, in historical terms, the second highest ever on our records, and broadly maintaining its overall share of total EM issuance (about 23%, within the 22-28% range seen over the last six years). Indeed, total EM international bond issuance (sovereign, corporate, local government, quasi, supras, all currencies), at US$759bn, was within touching distance of the record volume seen in 2020, falling short by just 1%.

Total EM issuance (US$ bn)

In all, we counted 45 sovereign issuers last year, although while some were infrequent issuers, there were no debuts (if we exclude UAE's regional bond). The biggest issuer was Chile (US$15.5bn), followed by Indonesia (US$12.2bn), and then Saudi Arabia, Turkey and Peru (all US$10bn each). As a result, the top five issuers accounted for a third of the total. GCC issuers as a whole accounted for US$29.9bn (17% of the total). SSA sovereigns were also active, issuing a total of US$13.9bn (8% of the total), across nine issuers.

Biggest sovereign issuers in 2021 (US$ bn)

Issuance so far in 2022, with one week gone (to 10 January), has been quiet with only Mexico's US$4.1bn dual tranche offer taking place (excluding Slovenia's EUR1.75bn dual tranche sale from our definition of EM). This compares to US$7.2bn in the first week of 2021 (from two issuers – Mexico (again) and Indonesia) and US$5.7bn in the first week of 2020 (curiously, from the same two issuers).

The slow start to this year's sovereign issuance may have something to do with US bond yields, which have already risen sharply this year (+25bps in a week on the ten year UST, and +42bps since their December low of 1.34%). The 10-year yield is now 1.76% (as of cob 10 January on Bloomberg, having hit 1.8% yesterday in intra-day trading), its highest level for ten months, exceeding the peak of 1.74% hit on 31 March 2021 during last year's taper tantrum inspired sell-off. The 10-year yield is now at its highest level since the pandemic – last being at this rate in January 2020, when it breached 1.8% from above.

US ten-year bond yield (%)

The rise in US bond yields may dent EM issuance plans in the near term as risks from market volatility outweigh the benefit of going early. However, EM spreads remain well contained, so far. The spread on the Bloomberg EM Aggregate Index is 298bps (as of cob 10 January on Bloomberg), a modest 1bps increase YTD (although it has widened by 5bps since narrowing to 293bps on 6 Jan), but spreads are still a chunky 35bps tighter since end-November. However the total return on the index YTD is -1.8%.

EM Spread (bps)