EM euro issuance will be highest in a decade on QE
By Michael Turner
LONDON, Feb 24 (IFR) - Euro-denominated emerging market sovereign issuance will soar to its highest levels in 10 years on the back of the European Central Bank's quantitative easing programme, as issuers outside the eurozone seek to take advantage of falling euro yields, according to bank analysts.
Euro debt issuance from emerging market sovereigns is expected to rise by 67% to EUR35bn this year because of the ECB's EUR1.1trn bond buying plan, which has already pushed yields down in the single currency region before a security has even been bought.
The ECB move will have a knock-on effect on euro-denominated issuance outside the eurozone, as investors look outside their regular stomping ground in search of higher returns, driving down the yields of emerging market euro curves in the process.
There is evidence that ECB fever has already hit the market following a tightly-priced dual-tranche offering from Mexico on Thursday.
The sovereign printed two euro bonds, due in 2024 and 2045, inside its dollar curve on a headline basis, though on a post-swap basis issuing in dollars would have been more cost effective. Still, the deal allows Mexico to consolidate its euro investor base.
SAME SIZE, MORE EUROS
Euro issuance from emerging market sovereigns in 2014 reached around EUR21bn, or about 27% of a sovereign market that totalled roughly USD100bn-equivalent last year, according to Societe Generale.
"I would expect the size of the market to remain roughly the same at around USD100bn sovereign issuance this year," Régis Chatellier, director, EM sovereign credit strategy at Societe Generale told IFR. "But the share of euro sovereign bonds should increase to 40%, which means the share of US dollar bonds should be lower." Continuación...