Some parts of the global bond market roared back to life in January, with sales of new debt securities off to a record start in Europe and across emerging markets.
Emerging-market governments such as Mexico, Saudi Arabia and Mongolia issued $61 billion of international bonds in January, smashing the previous high for the month of January of $41 billion, according to data from Refinitiv going back to 1970.
In Europe, governments sold a record $75 billion in bonds in January while companies with investment-grade ratings issued at the fastest pace for the month since 2011, as concerns about recession in Europe and the continent’s energy security faded.
William Weaver, the London-based head of debt capital markets for Europe, the Middle East and Africa for
said investors are putting in larger orders, demanding smaller premiums and opting for riskier issuances.
“It feels really hectic,” said Mr. Weaver, whose team has raised over $105 billion so far this year for governments, banks and companies. “It’s a real pivot. It’s not just the volumes that have gone up but it’s actually the type of transactions that are getting done. It’s the riskier stuff, the stuff that couldn’t get done last year, that is now surfacing this year.”
Higher interest rates, after a decade of ultraloose monetary policy, have increased the appeal of owning bonds. In addition, investors are welcoming signs that inflation has peaked, economies are slowing only modestly and central banks are near the top end of their interest-rate cycles.
Rising rates and rapid inflation erode the value of the fixed payments of older bonds. That combination helped send global bond indexes to unprecedented double-digit-percentage losses last year.
“It is the first time in a long time where fixed income is really standing on its own two feet as an asset allocation alternative compared to equities,” said Fraser Lundie, head of fixed income for public markets at
in London. He said that had resulted in an imbalance between bond supply and demand in the past few weeks.
Investors fled emerging markets last year as the dollar surged and Russia’s invasion of Ukraine sent commodity prices soaring. Bond sales ground to a halt—not a single international bond was issued by an emerging-market government in July—and some fragile economies such as Ghana and Sri Lanka turned to the International Monetary Fund for rescue packages.
The shift to less-aggressive monetary policies and China’s reopening has boosted growth prospects for emerging markets, said Yvette Babb, a portfolio manager at William Blair Investment Management who in recent weeks has bought bonds sold by Turkey, Serbia and Hungary.
Aside from emerging markets, a range of global companies and governments are rushing to tap the markets. Recent days have brought a roughly $14 billion bond deal sold by a syndicate of banks on behalf of Spain, a $2.1 billion deal from U.S. consumer-goods giant
Procter & Gamble Co.
and a slew of sales from financial institutions such as
Bank of New York Mellon Corp.
, which are usually among the biggest users of global debt markets.
Toyota Motor Corp.’s
financial arm, Toyota Financial Services, was among the firms to rush to the market this year with a $3 billion, four-part deal in early January.
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“We saw probably the strongest order book since any deal we’ve done since the start of the pandemic,” said Adam Stam, head of markets and liquidity at the company.
Christian Hantel, a global corporate-bond portfolio manager at Zurich-based
said his firm has shifted money from the U.S. to Europe, taking advantage of a broad market rally as concerns wane that the bloc will experience a deep recession and energy shortages stemming from Russia’s invasion of Ukraine.
“Last year we were favoring the U.S. over Europe because the U.S. was more immune on the whole discussion on energy supply, potential recession, inflation. This has shifted now a bit more toward Europe,” he said.
The yield on an index of high-quality euro-denominated corporate bonds tracked by index provider ICE Data Indices has fallen to 3.9% from 4.2% at the end of last year. Yields on European government bonds, which underpin the rates at which corporations and households can borrow, have also fallen.
Similarly, in Asia, yields on investment-grade bonds have fallen to about 5.5% from roughly 5.8% at the end of last year, according to an ICE
index. Yields fall as prices rise.
Even with the fall, “Yields on the whole are very attractive to be entering the market, especially for investment grade,” said Henry Loh, head of Asian credit for
a fund manager.
Despite the surge in selected markets, overall bond sales have declined this year, falling 15% from last January to $858 billion.
U.S. issuance is running at a slower pace as many financial firms borrowed pre-emptively last year and higher borrowing costs force companies to rethink using new debt to fund moves like mergers and share buybacks, said Winnie Cisar, global head of strategy at CreditSights.
In Asia, some companies are finding it easier to borrow in local-currency debt markets than abroad as the global appetite for investment-grade dollar bonds has yet to fully recover from China’s property crisis and regulatory concerns.
And the world’s riskiest borrowers, such as companies with low credit ratings and poorer nations, have yet to return to the market. That reflects lingering concerns about the depth of the expected global economic slowdown and questions over how quickly inflation will fall.
“It’s difficult to be confident that we are out of the woods,” said Mr. Weaver of Citi. He said some bond issuers were front-loading their fundraising this year, which would likely lead to lower volumes of new-bond sales later in 2023.
Write to Chelsey Dulaney at [email protected] and Frances Yoon at [email protected]
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