Emerging Market sovereign bond issuance collapses in May

  • EM hard currency sovereign bond issuance fell last month to its lowest level since August 2020
  • Issuance has amounted to US$85bn YTD, although that is 16% below the same period last year
  • Moreover, there was no HY issuance either for the first time since August 2020
Emerging Market sovereign bond issuance collapses in May

EM hard currency sovereign bond issuance saw a sharp fall last month. Besides the actual fall, two other things stand out in the data. First, total monthly issuance was the lowest since August 2020. Second, for the first time since August 2020, there was no high yield (HY) sovereign issuance in the month.

EM hard currency sovereign bond issuance slumped to just US$7.3bn in May, based on our calculations using data from Bond Radar, a 55% fall on the previous month (April) and a 47% fall on the average in the preceding three months (February-April). It was the lowest monthly issuance since August 2020.

EM hard currency sovereign bond issuance by month*

Year-to-date, issuance amounted to US$85.4bn. Remarkably, this is some 16% below the same period last year, when – recall – we lost virtually two months of issuance due to the onset of the coronavirus pandemic, and that's even with this year's record-breaking January. Before last month, issuance this year had broadly kept pace with issuance last year (YTD issuance to April was only 5.5% below the same period in 2020), so the gap has widened after such a slow May.

Cumulative sovereign EM issuance year-to-date (US$ bn)

Moreover, investment grade (IG) accounted for all sovereign issuance in May. There was no HY or crossover issuance last month. But despite HY being nilled, for the first time since August 2020, and with less than US$2bn of HY issuance in April, cumulative HY issuance so far this year of US$28.3bn remains ahead of what it was in the same period last year, although clearly the gap has closed. Year-to-date, IG now accounts for 64% of total issuance, with HY 33% and crossover 3%.

The slow month for issuance comes at a time when yields on HY sovereigns, and frontier market yields in particular, have fallen, possibly helped by the limited new supply in the primary market, despite wider EM yields. Lower frontier yields might reignite the issuance pipeline in coming weeks; both Senegal (mandate for a EUR benchmark with min. 15Y WAL) and Ghana (plans to sell a sustainable bond for up to US$1bn by July) have recently announced issuance plans for example. Higher EM yields, up approx. 50bps this year, however may pose a headwind to issuance activity.

Nominal EM and Frontier yields (%)


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