A brilliant start
Although emerging bond markets are off to a flying start, this may not translate into a great year overall.
Morgan Stanley forecasts total gross sales of sovereign debt in 2023 to reach $143 billion, driven by the Middle East and North Africa and investment-grade Asian countries. The figure is well above last year’s multi-year low of $95 billion, but less than the 2020 record of $233 billion.
Madhur Agarwal, head of Non-Japanese Asian Debt Capital Markets Origination at JPMorgan, said that while January is typically a good month for countries to issue, demand was high because “investors see that we are approaching the limit of interest rate hikes in the United States and should be more stable in the future”.
Emerging economies were not the only ones to increase their liquidity, as US corporate issuers, European governments and other fixed income sectors also increased their issuance earlier in the year, some of it to help offset the impact of the crisis. energetic.
Costa Rica and the Dominican Republic are some of the countries that need to hit the market this year and are likely to do so soon, according to Carlos de Sousa, a portfolio manager at Vontobel.
“This does not mean that it is a short window of opportunity. It may be long, but countries don’t know it and neither do we,” de Sousa added, stressing that just two months ago investors “were still very defensive” and sitting on a pile of cash.
With almost no bonds maturing in 2023, most sub-Saharan African economies do not need to issue debt abroad, de Sousa said, while the Ivory Coast and Senegal will only do so if the market continues to rise.
“The blessing for 2023 is that we don’t have a huge spike in Eurobond maturities for frontier (markets),” said Gregory Smith, emerging markets fund manager at M&G Investments, referring to what are perceived as riskier than markets. emerging.
In his view, Egypt will need to issue debt in the medium term, but could wait for market conditions to improve as indicated yields have dipped to the 8-9% range from the current double digits.
“The country has to deliver on the reforms it promised to the IMF,” Smith said.
Nigeria could get through this year’s presidential election debt free if it maintains a good cushion of foreign exchange reserves, according to BofA’s Paja.
“Kenya and Angola will have to go to the market, while South Africa will stay completely out of it this year,” he said.