LONDON, Jan 31 (Reuters) - From Argentina’s government to a small Ukrainian sunflower oil firm, emerging market borrowers rushed to global bond markets in January, raising a near-record $63 billion-plus amid still-low interest rates and buoyant investor appetite.
Bond sales stand just a whisker off the record $66 billion raised in January 2014, according to Thomson Reuters data which showed that sovereigns had borrowed just over $26 billion by Jan. 30, while corporate debt sales totalled $35 billion.
Some of the success is down to emerging debt funds being flush with cash, having taken new money in the first three weeks of 2017 and extending last year’s $40 billion inflows, according to EPFR Global data.
“Investors were cash-heavy going into the New Year as they were defensively positioned. So people had net inflows and they were overweight in terms of cash. Put that together and all the new supply has been very well absorbed,” said David Riley, head of credit strategy at BlueBay Asset Management.
The buoyant picture is in contrast to last January when emerging bond sales shrank to six-year lows amid an oil price collapse and fears of a crisis in China.
Sovereign issuance back then amounted to just $9 billion, while companies raised around $18 billion, TR data showed.
The bond bonanza defies fears that Donald Trump’s surprise victory in the U.S. election in November would cause investors to flee emerging markets, many of which stand to lose if his protectionist, anti-migration rhetoric is implemented.
“In the post-Trump period a lot of investors ... loaded up on cash in anticipation of redemptions which didn’t really come so they had appetite (for new bonds),” said Koon Chow, a macro and FX strategist at UBP.
Trump campaigned on a pro-growth platform, pledging $1 trillion in stimulus, which for now at least is seen as positive for commodities, equities and emerging markets. The expectation, however, is that these policies will drive up inflation and borrowing costs.
While the majority of funds polled by Reuters reckon the U.S. Federal Reserve will raise interest rates once or twice in 2017, more than a third saw a risk of three hikes.
“Issuers are taking the view that global yields would go up so ‘I want to lock in some funding’ before that happens,” Chow added.
In fact much of the borrowing rush came just before Trump’s Jan. 20 inauguration. On Jan. 18, the Philippines, Turkey, Colombia, the Dominican Republic and Argentina all came to market, unleashing almost $15 billion in supply.
The following week Egypt raised $4 billion via a three-tranche deal, drawing orders more than three times that amount, while Turkey, battling to contain a currency slump to record lows, successfully placed $2 billion.
And sunflower oil producer Kernel broke the three-year long bond issuance drought in Ukraine, placing $500 million at a yield of 8.875 percent.
While this yield was lower than expected, many issuers had to pay up to place debt: Argentina, for instance, took $21 billion in bids for its $7 billion deal that launched on Jan 19 but bankers estimated it paid a 30 basis-point “new issue premium” to lure buyers.
Turkey’s new bond yielded 6.15 percent, while its $1.5 billion issue from March 2016 paid 5 percent.
Still, new issuers will likely find buyers in coming months - despite last year’s slow start, 2016 emerging bond issuance totalled around $450 billion, with record sovereign sales. (Reporting by Sujata Rao; Editing by Gareth Jones)