Emerging-market governments and companies have issued $331 billion in hard-currency bonds this year, marking the fastest pace in four years and surpassing the total for the first half of 2024, according to Bloomberg data. This surge is driven by strong demand from investors seeking higher yields amid uncertainty in global markets.
Investors are attracted to emerging market (EM) bonds as questions arise about the US market’s dominance and the dollar’s value declines.
Banks like Bank of America and JPMorgan forecast gains for EM assets with a weakening dollar, while Societe Generale describes the current environment for developing nations’ local assets as a “goldilocks” moment.
The yield premium on EM dollar bonds over US Treasuries has narrowed to near its lowest since 2020, yet demand remains strong because US spreads have also tightened.
Omotunde Lawal, head of EM corporate debt at Barings, says borrowers act quickly when market conditions are favorable, especially with US fiscal concerns possibly pushing yields higher.
JPMorgan’s Stefan Weiler notes that uncertainty about the US economy motivates borrowers to issue bonds now, fearing that a possible US recession—which JPMorgan estimates at 40% likelihood—would raise borrowing costs by widening spreads.
The strong issuance started early in the year as many developing countries overcame post-pandemic defaults and implemented economic reforms.
Although US tariff announcements in April briefly slowed the market, emerging bonds quickly rebounded once tariff threats eased. The US administration plans to review tariffs again in July, which could affect future market activity.
Emerging markets have proven relatively safe during this period, with improving fundamentals and sovereigns rewarded for fiscal prudence, says Aviva Investors analyst Carmen Altenkirch.
A Bloomberg index shows EM debt returns up 3.5% this year, outperforming US Treasuries. A weaker dollar helps by making hard-currency debt cheaper and giving central banks more flexibility.
Investment-grade issuers dominate, accounting for over 70% of bonds sold. Mexico set a record deal early in the year, Saudi Arabia raised $12 billion, and China’s issuance increased.
In the Middle East, where many borrowers have investment-grade ratings, funding needs rose sharply due to falling oil prices. The region is expected to represent over 40% of CEEMEA issuance this year.
Read more:
