(In para 10 corrects to show that Latvia has not yet issued a
bond but has mandated to do so. In same para, corrects currency
of Petrobras bond to euro/sterling (not euro dollar)
* Emerging mkt bond sales up 64 pct in Jan yr/yr
* Sales follow last year's record issuance
* Issuers rush to borrow before costs rise further
By Sujata Rao
LONDON, Jan 10 Emerging markets have kicked off
their 2014 borrowing campaigns in style, with bond sales since
the start of the year up 64 percent from year-ago levels and
hefty order books contrasting with weakness in broader emerging
The Philippines weighed in with a $1.5 billion bond on
Friday, securing orders of $14 billion, or a subscription rate
of nine times, a record for the country.
Its success rounds off a week of heavy bond issuance, not
only from emerging governments and companies but also from
bailed-out euro zone states Ireland and Portugal which returned
to debt markets with heavily oversubscribed deals.
It also extends last year's record issuance of over $450
billion by emerging borrowers. That was despite volatility
fuelled by the U.S. Federal Reserve's plans to wind down its
bond buying, although issuance could start to slow if U.S.
yields continue to rise.
This month, emerging borrowers have raised $18.5 billion,
compared to $11.3 billion in the same period in 2013 and
surpassing the $16.9 billion chalked up in 2012, according to
Thomson Reuters data.
Sales accounted for roughly 13 percent of total global
issuance, compared to 6 percent in the first 10 days of 2013 and
contrasting with the losses that emerging stocks, currencies and
local debt markets are suffering already this year.
Luis Costa, head of CEEMEA strategy at Citi, said the bond
sales were evidence of still-robust interest from institutional
investors who have cash to place at the start of the year.
"Institutional money is still participating in these
markets, especially in primary (bond) auctions given the
perception that you will get a premium," Costa said, referring
to the so-called new issue premium issuers generally offer to
"They would rather participate in new issues than in
secondary markets where liquidity has been affected," he said.
Other bonds from this week include Poland's 2 billion euro
issue and a $4 billion deal from Mexico. Slovakia also sold
bonds while Kenya, Latvia, Israel and Romania have mandated for
debt issues. State-run Brazilian oil firm Petrobras weighed in
with a jumbo euro-sterling deal.
And a dual-tranche bond from Indonesia - one of the
so-called Fragile Five group of emerging economies with the
biggest overseas financing needs - for a total $4 billion
received bids of up to five times in excess of the issue size.
Part of the recent rush to issue is motivated by the need to
borrow before costs rise further. That's especially so at
emerging companies that raised more than $350 billion in bonds
last year and are expected to make up the bulk of 2014 issuance
The Federal Reserve is set to cut its bond purchases, or
"taper" them, by $10 billion from this month and that has pushed
10-year U.S. Treasury yields towards near two-year highs around
3 percent. Last year, yields rose dramatically, doubling from
"The main positive is that the uncertainty over Fed tapering
is out," said Simon Quijano-Evans, head of emerging market
strategy at Commerzbank. "We know now that the taper will
But a correction could loom as more bond issues hit and if
U.S. yields rise further near the January Fed meeting. Analysts
also note that many new issues, particularly sovereign, are not
offering sufficient premium to existing bonds, especially given
the backdrop of rising U.S. bond yields.
The Philippines, for instance, is paying 4.2 percent on its
issue, while investors had reckoned fair value on the 10-year
deal would be 4.3 percent, comparing it to the 4.4 percent yield
on a longer 2026 bond.
Poland paid investors a 12 basis-point premium to its
existing bond yield curve, while Slovakia and Mexico offered
"I'm not sure this resilience in the bond market will
continue," Costa said. "The prospect of rising U.S. rates is
still on the table and some spreads are looking way too tight."
But with latest U.S. jobs numbers on the weak side, markets
could pare back their expectations of the speed at which the Fed
will reduce its stimulus. That could spur fresh interest in new
emerging market bonds.
(Additional reporting by IFR; Editing by Susan Fenton)