What happened
Governments in emerging markets have pulled back from selling new hard-currency debt in the latter half of the year, with issuance running 41% below the comparable 2023 stretch. Bloomberg's tally shows combined dollar and euro sovereign offerings reached $69 billion between July 1 and Nov. 13.
The dry spell intensified from the beginning of September, when new deals fell by roughly 50%. Without a pickup before year end, it would be the first year since 2022 that total hard-currency issuance from these borrowers declines. Bloomberg's figures compare sovereign sales placed internationally over the July 1 to Nov. 13 window to illustrate the timing of the slide.
Why borrowers are holding back
Fund managers point to oil price swings tied to the war involving Iran and big moves in US Treasuries as key reasons issuers stayed sidelined. London based Reza Karim, Pictet Asset Management's senior investment manager, put it this way: "The two major drivers are higher US rates and geopolitical risk." He said both were highly volatile, leaving buyers and sellers hunting for a window that never showed up.
The 10 year US Treasury tells the story. The yield started September near 4.8%, climbed to about 5.4% in early October, then eased back below 4.9% in November. That near 60 basis point round trip made it tough for borrowers to lock in funding costs.
Volatility like that makes it "very difficult for syndicates to do book-building with some confidence that the deal will ultimately be successful," said Chris Celio, Promeritum Investment Management's chief economist and strategist in London. He added that with few new bonds, EM prices get a lift as funds either sit on cash or buy in the secondary market.
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How the market is reacting
Even with thin supply, performance has held up relatively well. Emerging market bonds are down 0.5% this year, better than the 1.5% decline for US Treasuries and the 1.8% drop for US corporate credit, according to Bloomberg. They rose 11% in 2023, marking a third consecutive annual gain.
Investor appetite looks intact when deals do appear. Based in Amsterdam, Yvette Babb of William Blair BV, who manages portfolios, said Peru's deal drew orders roughly five times the amount offered, while Ecopetrol's garnered about three times that level. Indonesia's sukuk was around three times covered, letting pricing tighten by 25 to 30 basis points versus initial guidance. Romania's 4.5 billion euro deal pulled in more than 7.6 billion euros in orders, or 8.4 billion dollars.
"The slowdown in EM issuance is primarily a supply-side story rather than evidence of weakening investor demand," Babb said. In London, Thomas Christiansen, who runs EM debt at Union Bancaire Privee and also serves as its chief investment officer, said the "huge book" for Peru shows "investors clearly have cash," adding that a rally in rates would probably lure more borrowers to return. At TT International Asset Management in London, Jean-Charles Sambor, who leads the emerging-market debt team, said, "We think that EM bonds will continue to outperform," pointing to stronger technicals, diminished supply risk, and better fundamentals. And at Manulife Investment Management, Elina Theodorakopoulou, who runs EM debt portfolios, described the asset class as "structurally under-owned" even after its significant maturation.
What this could mean for your portfolio
Scarce new paper is a tailwind for existing EM bonds because less supply competes for investor cash, helping price support even as year-to-date returns are slightly negative. Looking ahead, Karim said that with geopolitical risk lower than earlier this year, supply could return "massively" at the start of 2027. He also said the credit quality of EM issuers is "among the best it has ever been," suggesting demand should be there when primary markets reopen. The bottom line: a reopening wave would change today's supportive technicals, so issuance windows bear watching.
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