It has been a bumper start to the year for EM hard currency bond issuance. Total EM issuance (sovereign, plus corporate and financials) has surged to US$101.4bn month-to-date (to 23 January), based on our calculations according to Bond Radar data. This comfortably exceeds January’s issuance in each of the previous eight years, and there is still one week to go.
Figure 1: EM hard currency bond issuance in the month of January (US$bn)
Source: Tellimer Research, Bond Radar. *To 23 January.
EM sovereign issuance stands at US$31.5bn YTD. This comprises 13 countries, six of which are in Latin America. Yet, although it may feel like a bumper start for sovereign issuance, being some 37% up on the whole of January 2019, it is still some 15% (US$5bn) below the recent record volume seen in 2018. But sovereign issuance in early 2019 was itself depressed following the market weakness seen over late 2018, so this year’s rebound may have been expected.
However, performance YTD on sovereign hard currency bonds is still modest, perhaps as supply has kept returns depressed this year. The total return on the EMBIGD is 0.9% YTD, well below the 4.4% return seen in January 2019 (markets recovered more quickly than issuance back then). Indeed, we think January 2019 was the best January over the past decade and probably the best since 2001. Among a wide sample of EMBI constituents and other smaller markets in our universe, the top-performing EM sovereigns YTD are Suriname (+9.3%) and Tajikistan (+8.3%). Lebanon (-11.1%) has been the worst-performing market, perhaps unsurprisingly.
Figure 2: January returns for EMBIGD (%)
Source: Tellimer Research, Haver. *To 24 January.
Market | % return YTD* | |
|---|---|---|
| 1 | Suriname | 9.31 |
| 2 | Tajikistan | 8.33 |
| 3 | Venezuela | 5.39 |
| 4 | Turkey | 4.30 |
| 5 | Belize | 3.96 |
| 6 | Laos | 3.80 |
| 7 | Ukraine | 3.45 |
| 8 | Mozambique | 3.40 |
| 9 | Gabon | 3.30 |
| 10 | Grenada | 2.65 |
Market | % return YTD* | |
|---|---|---|
| 1 | Lebanon | -11.10 |
| 2 | Argentina | -8.94 |
| 3 | Ecuador | -1.92 |
| 4 | Bolivia | -1.80 |
| 5 | Iraq | -0.97 |
On the other hand, EM corporate issuance (corporate and financials) for January is already at a multi-year high. Corporate issuance is US$69.9bn YTD, double January 2019's level and 40% above January 2018. The vast bulk of issuance so far (54%) has been from Asia (and much of this is from China), followed by Latin America (30%).
Figure 3: Corporate issuance by region* (% share in total)
Source: Tellimer Research, Bond Radar. *To 23 January.
However, we caution against extrapolating January issuance to conclude that we are set for a record year of EM issuance. In fact, 2019 issuance was the best year in recent history, with EM issuance of US$637bn, fractionally beating the previous record set in 2017. The beginning of the year typically starts strongly as debt managers and corporate treasurers get an early start on pre-funding their annual financing needs (January has averaged 11% of bond issuance over 2012-19). But the burst of issuance this year might also come as issuers take advantage of relatively benign global monetary conditions and the easing of fears over the US-China trade war, recognising that market conditions could deteriorate later in the year.
Figure 4: EM hard currency bond issuance (US$bn)
Source: Tellimer Research, Bond Radar. *To 23 January.