27 de febrero de 2015 / 9:44 / hace 3 años

EM euro issuance will be highest in a decade on QE

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.


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.”

If euro-denominated emerging market sovereign issuance hits the EUR35bn level Chatellier forecasts, it will be the highest such amount raised in the currency in the last decade, according to Thomson Reuters data.

Until last year, EM sovereign euro issuance had struggled to break through EUR20bn - the only exception being the EUR23bn raised in 2010.

Those emerging market issuers within the eurozone are already seeing their debt rally hard. Latvia 2024s, for example, are trading at a yield of 0.7%, according to Tradeweb, nearly 100bp lower than at the end of 2014.

Sovereigns with plenty of room to issue new debt are likely to be some of the biggest beneficiaries of ECB bond buying, according to Martin van Vliet, a strategist at ING.

“Issuers such as Slovakia...will benefit more from the programme than the likes of Belgium and Italy, given its much lower amount of outstanding bonds in the two- to 30-year maturity range in proportion to its GDP,” said van Vliet.

Croatia, not in the eurozone, is seeking to raise euros, although it could print its transaction before the ECB begins buying debt.

Sovereign issuers from outside Europe with an existing euro curve are expected to capitalise on falling yields, with South Africa, Turkey, Brazil, Morocco and Indonesia all highlighted by Chatellier as possibilities to issue new euro debt.

All of those sovereigns “would be inclined to issue in euros, either in order to fund their financing gap, or to boost their FX reserves,” said Chatellier. (Reporting By Michael Turner; editing by Sudip Roy, Julian Baker)

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