In recent weeks, investors have been reminded how supposed risk-free assets, like Treasuries and bunds, can still inflict substantial losses. So far in the second quarter of this year, 10-year yields have risen by nearly 0.48 per cent in Germany and by 0.31 per cent in the US.
As a result, the JPMorgan GBI Global bond index is down 2.72 per cent in the year to date. With bond yields expected to drift higher as global growth and inflation pick up, this will continue to be the case. Puchasing bonds with wafer-thin yields means there is no cushion for capital losses.
Even locking in current bund yields of around 0.70 per cent, an investor would make a zero annual return if yields inch up by just another 0.07 per cent. A rise in yields of 0.25 per cent would be enough to erase dollar returns of ten-year Treasuries yielding 2.23 per cent today. Read more
How worried should you be when the US Federal Reserve goes ahead with its first interest rate hike? After all, following years of close to zero policy rates and three rounds of quantitative easing, this will be a significant change in policy.
Financial markets do not appear too concerned. One could even say that they are being complacent. Nevertheless, the usual commentators are once again stating that Fed hikes will bring the end of the world and of emerging markets.
So who is right, the complacent markets or the doomsayers? We think neither. Read more
By Shamaila Khan of AllianceBernstein
Investors in US dollar-denominated bonds issued by emerging market corporates are worried that the greenback’s rise, together with a broad decline in EM currencies, could increase the risk of defaults on their holdings. How worried should they be?
Those now ringing the alarm bells about US currency risk in the EM corporate debt market are doing so because of what they see as the big picture: a systemic risk caused by many companies financing domestic assets with foreign currency liabilities. Read more
Sinopec has taken advantage of a huge demand for Asian debt by selling the second biggest ever US dollar bond deal in the region – and the biggest ever out of mainland China – at a lower interest rate than the Chinese government itself pays for similar debt. Read more
Tanzania is one of several African countries that have announced their intention to issue eurobonds this year, taking advantage of favourable conditions for frontier market sovereign debt.
But instead of going to market with a plain vanilla eurobond as expected, the east African country has surprised money managers with plans to issue a $500m, seven-year amortising bond this week in a private placement. Read more
2012 was a great year for EM external (or ‘hard currency’) sovereign debt, with double digit returns and record fund inflows. The question at the start of 2013 is “will it last?” Pimco, one of the world’s largest fixed income investors, suggests in a note released on Monday that the asset class has in general reached fair value, and may even be overpriced. Read more
Announcements of new bond issues have been coming thick and fast out of Zambia this year, and the government’s Road Development Agency is the latest to get in on the act.
According to Bloomberg it plans to issue $1.5bn of debt to international investors later this year. Ambitious, certainly – will it work? Read more
Call it the Jackson Hole effect. Or the Draghi bounce.
But after the August lull, the bond market in Latin America is roaring back to life again.
Emboldened by investors’ hunger for returns, LatAm companies and governments have wasted little time tapping international markets, raising some $5.7bn since the start of September, according to Dealogic. Read more
Few asset classes have benefited more from this year’s market turmoil than emerging markets hard currency debt.
With yields on US and UK bonds hovering near zero and Germany’s 2-year paper offering negative yield, investors on the hunt for better returns have piled into the asset class with gusto.
In the first seven months of this year, investors put a record $18.8bn into funds dedicated to EM hard currency bonds, according to EPFR Global, a data provider. This shatters the previous high of $14.79bn received for the whole of 2010. Read more
After a near seven month lull, Russian corporates are returning to the Eurobond market in droves. Big name borrowers such as state-owned Russian Railways and VTB have followed on the heels of the Russian government, which last week raised $7bn in one of the biggest emerging market sovereign issues ever, while privately-owned borrowers, including Promsvyazbank and Raspadskaya, are expected to soon follow suit. Read more
Need further proof that LatAm corporate bonds are the must-have investment of 2012?
Look no further than Petrobras, which is expected on Wednesday to announce plans to sell $5bn-$6bn of dollar-denominated bonds. The bumper issue would come just a year after the Brazilian oil major raised $6bn in the biggest bond issue in its country’s corporate history. It also underscores the ferocious appetite for LatAm corporate bonds in the market at the moment as investors hunt for yields. Read more
There seems to be have been a small uptick in risk appetite this week towards emerging market funds, with equities in favour among investors.
Emerging-market equity funds took in $1.9bn in the week to Wednesday, while those targeting bonds attracted $172m, according to investment banks citing EPFR, the research company. Read more
What to make of this week’s fund flows? Emerging market hard currency bond funds saw a big outflow; EM local currency bonds continued to ebb away; but EM equity funds leapt up.
The hard currency number may be a blip – but the local currency data hint at bigger problems. Read more
As expected, emerging market funds continued to haemorrhage capital this week as investors looked to cut risk exposure at year’s end. EM investors’ aggressive risk-off mode wasn’t helped by a limper than hoped for European summit and the European Central Bank’s subsequently weak market interventions. Read more
By Matt Kennard
Felipe Larraín, Chile’s finance minister, had a big smile on his face Thursday morning as he talked reporters through his country’s successful $1.35bn bond issue at Deutsche Bank’s offices on Wall Street.
He had reason to be cheerful. The Chilean government has just sold $1bn of 10-year dollar-denominated bond, yielding 3.35 per cent, the lowest borrowing costs in Latin American history for a sovereign issuer, according to Larraín. Read more
Chile is poised to issue $1.5bn in debt by reopening a global peso-denominated bond due in 2020 for the equivalent of $350m and issuing $1bn in new 10-year bonds, a new benchmark in dollars, according to analysts. Read more