Macro Analysis /
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EM sovereign bond issuance sees summer lull

  • Rwanda's US$620mn issue was the only EM hard currency sovereign bond issuance in August

  • Issuance amounts to US$122bn YTD, 10% below the same period last year

  • Activity to pick up this month as EM financing conditions remain supportive with Maldives already tapping the market

EM sovereign bond issuance sees summer lull
Stuart Culverhouse
Stuart Culverhouse

Head of Sovereign & Fixed Income Research

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Tellimer Research
6 September 2021
Published byTellimer Research

EM hard currency sovereign bond issuance virtually ground to a halt in August amounting to just US$620mn, and that came from one issuer (Rwanda). This marked a 96% fall on the US$17.1bn issued in July and an 88% fall on the same month last year.

Indeed, it was the lowest monthly issuance volume we've observed since we began tracking the monthly data in January 2020, and was comfortably below the low seen in March 2020, when the primary market closed during the pandemic.

EM hard currency sovereign bond issuance by month*

This brings total EM hard currency sovereign issuance to US$122.3bn YTD, based on our calculations using data from Bond Radar, some 10% below the same period last year. For the year so far, Investment Grade (IG) still accounts for the lion's share of issuance, amounting to 62% of issuance. High Yield (HY) is 36%. Crossover accounts for the remaining 2%.

The only sovereign issuance last month came in the HY segment. Rwanda (-/B+/B+) returned to the market following its debut in 2013 with a US$620mn ten-year issue and a tap for the existing 2023s. Pricing at 5.5% was at the lower end of yield expectations (although we still think the new bond looks attractive). Rwanda's issuance brings total sovereign issuance from Sub-Saharan Africa (SSA) to US$9.1bn this year, from seven issuers.

SSA sovereign eurobond issuance in 2021

Indeed, while a nil month for HY issuance is not unusual, we think it must be something of a record in IG. Certainly, we haven't seen a nil month for IG issuance since January 2020, not even during the height of the pandemic.

However, although total cumulative issuance YTD now lags even further behind last year's run rate, as a result of a slow August, HY issuance remains ahead of last year. HY issuance YTD amounts to US$43.7bn, which is 23% higher than in the same period last year. And, interestingly, we observe that while HY issuance was the only issuance this August, there was no HY issuance in August 2020 (it was only IG – amounting to US$5bn).

Issuance may pick up in September after the usual August lull. Maldives (Caa1/-/CCC) has already issued this month, with another tap of its new 2026 bond on 2 September. It was its second tap of the issue, which was issued in March, this time for US$200mn, following the first tap for US$100mn in April. It takes the total size to US$500mn. The tap comes after Moody's one-notch downgrade to Caa1 on 17 August. Nigeria may also issue the first tranche of its US$6.2bn issuance plans this month.

Meanwhile, EM financing conditions remained broadly supportive, as nominal EM yields fell over the month by 3bps to 4.44%, as the 12bps narrowing in the EM country risk premium (given by the EMBI spread) to 313bps helped to offset the 9bps rise in the risk-free rate (with the yield on 10yr UST rising to 1.31%). Nominal EM yields are only some 30bps off their all-time lows reached at the end of last year.

Nominal EM yields (%)