Emerging market eurobond volumes set for record year in 2020

Eurobond volumes in emerging markets (EM) are on course to reach a record high in 2020 as central banks’ unprecedented liquidity support to counter the coronavirus crisis provides an attractive funding environment for high-rated issuers, Moody’s Investors Service said in a report.

EM debt issuers brought a total of $488 bln of eurobonds to market between Q1 and Q3 this year, which suggests that last year’s $590 bln total is set to be overtaken amid ample liquidity conditions for high-rated issuers, the Moody’s report said.

The Middle East accounted for just over a third of EM sovereign issuance in the first nine months of the year, as the region’s governments bolstered their finances against a backdrop of subdued energy prices and weaker tourism.

By contrast, Sub-Saharan Africa eurobond volumes have dried up, with no new issuance in the third quarter.

“Investment-grade debt issuers are taking full advantage of attractive funding conditions in global emerging markets,” said Rahul Ghosh, a Moody’s Senior Vice President and the report’s author.

“However, the picture is very different for issuers lower down the credit-quality spectrum, where market access remains challenging.”

While EM sovereign issuance slowed in the third quarter, a recovery in non-sovereign activity is gaining traction. Easier financing conditions are allowing investment-grade EM non-sovereigns to issue bonds at record low coupons and longer tenors.

In terms of EM corporate deal flow, real estate and property is leading the way. However, corporate bond issuance growth is unlikely to accelerate materially in the final quarter of 2020 and beyond given expectations of a tentative recovery in economic growth.