Key Takeaways:
- EM bond sales hit $321 billion in H1 2024, up 32%.
- Political risk could slow H2 bond sales significantly.
- Reduced issuance may boost bond prices due to scarcity.
What Happened?
Emerging-market (EM) bonds saw an explosive first half of 2024, with sales totaling $321 billion—the highest since 2021. This represents a 32% increase from the first six months of 2023, driven by high yields and renewed market access.
Saudi Arabia led the pack, issuing around $35 billion in deals, dethroning China as the top seller. Sub-Saharan Africa and Latin America also showed strong performance, with notable contributions from Brazil, Mexico, and various corporate deals. Despite this surge, EM dollar bonds yielded just a 2.5% return, down from 3.4% last year.
Why It Matters?
This unprecedented bond spree demonstrates a rush by EM governments and corporations to secure funding amid favorable conditions. However, political turbulence in countries like France, Bolivia, and the looming US elections are expected to cause a sharp slowdown in H2 2024.
Alexander Karolev from JPMorgan noted, “In terms of 2024 funding need, probably 80% is already done.” This significant front-loading leaves less room for new issuance, potentially creating a scarcity that could boost bond prices. Investors should be aware of the heightened volatility that could arise from geopolitical events, affecting market appetite and borrowing costs.
What’s Next?
Expect a quieter second half as political risks and the US election weigh on market conditions. Philip Fielding from MacKay Shields pointed out that “less issuance creates scarcity in bond markets,” which could support higher prices.
JPMorgan forecasts a total of $163 billion in sovereign issuance and over $300 billion in corporate sales for the year. As the US election approaches, market volatility could increase, affecting borrowing costs and spreads over safer debt. Investors should watch for potential windows of opportunity post-election and after the Fed’s anticipated rate cut in December, which could lower borrowing costs further.
