Macro Analysis /

EM sovereign bond issuance steadies in November

  • EM hard currency sovereign bond issuance was US$12bn in November, broadly unchanged from the previous month

  • Issuance amounts to US$172bn YTD, although is now unlikely to catch up with last year's total

  • EM financing conditions continue to tighten, as US rate outlook and Covid (now Omicron) weigh on investor sentiment

EM sovereign bond issuance steadies in November
Stuart Culverhouse
Stuart Culverhouse

Head of Sovereign & Fixed Income Research

Tellimer Research
1 December 2021
Published byTellimer Research

EM hard currency sovereign bond issuance was US$12.4bn in November, virtually unchanged from October (only -3.5% on the month), based on our calculations using data from Bond Radar. However, after a strong November a year ago, last month's issuance was down 55% yoy. Total EM sovereign issuance YTD now stands at US$172.2bn.

EM hard currency sovereign bond issuance by month*

Investment grade (IG) accounted for the bulk of last month's issuance, c72% of the total. High yield (HY) was 28%, after no high yield issuance in October. Year to date, IG accounts for 63% of issuance, with 35% in HY and the remaining 2% in cross-over.

In terms of cumulative issuance year to date, issuance so far now lags last year's run rate, after closing the gap last month. Issuance is now 10% below the US$191.4bn issued over the same period last year – due to the strong November 2020 – and, unless we see a spectacular December, which seems unlikely given the external headwinds, issuance for this year as a whole is likely to be well below the US$203bn seen in 2020. However, the overall figure masks an interesting difference between IG and HY, with HY issuance 13% above last year's run rate and IG 17% below.

There were six issuers altogether – three IG and three HY – compared with four in October, although two of those that issued in October came back again (China and Peru). In IG, Peru returned to the market with a EUR1bn 15-year issue, after its successful US$4bn triple-tranche offering in October. China (EUR4bn triple tranche) and Saudi Arabia (US$3.25bn dual tranche) also issued again. China has now issued US$8.6bn this year (all coming in the past two months) while Saudi Arabia has issued US$10bn (we think Indonesia has been the busiest issuer this year, with US$12bn so far). We note that Hong Kong also came to the market last month with a US$3bn equivalent triple tranche offer (in EUR and US$), following a US$2.5bn triple tranche offer in January, although we exclude Hong Kong from our definition of EM here.

HY issuance came from Albania (returning to the market with a EUR650mn 10-year bond after issuing last year), Bahrain (US$2bn dual tranche issuance, returning after a US$2bn triple tranche deal in January), and Gabon (US$800mn 10-year, with a 9-year WAL, priced at 7%). Gabon's issue was its first since the onset of the pandemic, after previously issuing in February 2020 (also a 2031 maturity, with a 10-year WAL, priced at 6.625%), although it had to pay 37.5bp more in yield terms compared with last time. Demand was reportedly US$1.6bn. Gabon (Caa1/-/B-) also announced a tender offer, with part of the proceeds used to fund a buyback for the existing 2024s and 2025s, with US$736mn and US$700mn outstanding, respectively, prior to the tender. The 24s have now been reduced to US$73mn, according to Bloomberg.

Gabon's bond issue brings the total number of SSA sovereign issuers this year to nine, issuing a total amount of US$13.9bn. Its LMO also continues a trend of shrewd operations in the region this year to reduce the debt service wall coming due over that period. Hence, net issuance from the region is somewhat lower.

SSA sovereign bond issuance in 2021 (US$ mn equivalent)

Heading into the last month of the year, the external environment may continue to weigh on investor sentiment and issuance plans. This is driven by ongoing concerns about the pace of US monetary tightening and high global inflation, and the emergence of the new Covid variant (Omicron), which could dent the global recovery as countries react by reintroducing or tightening travel restrictions and lockdown measures (which was already happening in the EU even before Omicron was announced). Oil prices (Brent) fell 16% in November on fears of weaker global demand (and some non-OPEC induced increase in supply).

EM financing conditions, which began tightening in September, continued to do so in November. EM yields rose 26bps in November to 4.6% on the Bloomberg EM Aggregate index, while the spread widened by a similar amount (29bps to 333bps) as US bond yields fell slightly (10-year UST yields closed November at 1.44%). The Bloomberg index saw another down month, with a total return of -1.1%, bringing the total return to -2.6% YTD.

Yield on EM sovereign bonds (%)

And within frontier EM sovereigns, weakness was wide-ranging. Among the weakest performers were El Salvador (prices down 15%), Ghana (-10%) and Ukraine (-8%), reflecting country-specific circumstances, while already distressed Sri Lanka also fell, as did oil-sensitive Angola and Nigeria.

Prices for selected EM bonds