Emerging-market governments and companies have issued $331 billion in hard-currency bonds so far this year, according to Bloomberg data. This marks the fastest pace of issuance in four years and already exceeds the total for the first half of 2024.
Dollar Weakness Fuels Investor Demand
As the US dollar has weakened, investors have poured money into international assets. Bank of America and JPMorgan Chase both forecast gains for emerging-market assets if the dollar continues to decline. Societe Générale even describes the current period as a “golden age” for local assets in developing countries.
The extra yield, or spread, that investors demand for emerging-market dollar bonds over US Treasuries has narrowed. A JPMorgan index shows spreads are just above their lowest levels since 2020.
Borrowers Move Quickly to Lock in Low Rates
Many issuers are racing to tap the market before borrowing costs rise further. Omotunde Lawal, head of emerging-market corporate debt at Bahrain Investment Services, said CFOs and treasurers prefer to issue now rather than risk higher US yields later. Stephen Weller, head of debt capital markets for CEEMEA at JPMorgan, noted that uncertainty about the US economy removes any incentive for borrowers to wait.
“If the US falls into recession, spreads could widen, raising costs in emerging markets,” Weller said. JPMorgan sees a 40% chance of a US recession.
Record Deals and Regional Highlights
Issuance began strongly as many developing nations completed post-pandemic reforms. Early in the year:
Mexico struck a record bond deal.
Saudi Arabia sold $12 billion across three transactions.
China saw a pickup in offshore activity.
In the Middle East, where most issuers are investment-grade, a drop in oil prices boosted demand for financing. Central and Eastern Europe, along with the Middle East, may account for over 40% of issuance this year.
Latin American issuers have also returned to offshore markets. Adrian Guzzoni of Citigroup expects the region to surpass last year’s deal volume. Even some high-yield issuers, such as Brazil and Peru, have launched new bonds. Telecom Argentina and first-time borrower Kyrgyzstan—whose $700 million five-year bond drew over $2.1 billion in orders—also tapped global markets.
Divergence in Frontier and High-Yield Markets
Not all emerging issuers have benefited equally. Rising US yields, trade uncertainty, and low oil prices have kept many lower-rated frontier countries on the sidelines, according to Samy Muaddi of T. Rowe Price.
However, strategists at Morgan Stanley predict new issues soon from Poland, Romania, Kuwait, and Kazakhstan. Central American countries such as Costa Rica and Guatemala may also join the market, noted Claudia Calich of M&G Investment Management.
Calich added, “If someone wants to issue bonds, they have about four to six weeks now. Otherwise, they must wait until September.”
Outlook: A Window of Opportunity
With US interest rates potentially rising and global trade risks still present, emerging-market borrowers face a narrow window to secure favorable terms. Investors, meanwhile, remain confident that a weaker dollar and improving local fundamentals will continue to support returns in 2025.
