Sales of international bonds from emerging markets and junk-rated companies in January, usually one of the busiest months, are down by 30-43 percent from a year ago amid worries about high indebtedness.
Debt sales by governments and companies in emerging markets fell to $49.1 billion in the period to Jan. 25, compared to $86.2 billion over the same period in 2018, data from Refinitiv showed. The number of deals declined to 69 from 125.
Turkey's currency crisis and Argentina's debt crisis, along with the prospect of borrowing costs rising and global growth stuttering, helped global hard-currency emerging sovereign debt to lose some 4.5 percent in value last year.
On average, January is usually the heaviest month for emerging sovereign issuers, according to Morgan Stanley, with 17 percent of annual debt sales.
This year, issuance in the weeks to Jan. 25 was dominated by higher-rated issuers or established names: Saudi Arabia sold a bumper $7.5 billion, while Israel raised a record 2.5 billion euros and Turkey also tapped the market.
But there are signs that lesser names are gradually joining in. Heavily indebted Ecuador this week sold a $1 billion bond while Egypt announced plans for $3-$7 billion in foreign-currency bonds in early 2019.
"Pricing is more challenging for some issuers ... but I expect we will see a catch-up in the first quarter," said Richard Segal, at Manulife Asset Management.
NO JUNK PLEASE
The picture on corporate bond sales globally was more upbeat -- Refinitiv data showed issuance in the first four weeks of 2019 at $87 billion, down just $800 million.
However, the number of deals fell to 84 from 130, with volumes boosted by large deals such as brewer Anheuser-Busch InBev's $15.5 billion issue.
But that represents a pick-up from 2018, when sales shriveled to seven-year lows.
"It was the worst December in many, many years across a bunch of risk assets," said Frazer Ross, head of investment-grade corporate bonds at Deutsche Bank in London.
"I don't think that many people presumed we would bounce back as quickly as we did."
He said many issuers had earlier signaled they would postpone bond sales until after the January earnings period. But data on high-yield or "junk" corporate bonds confirmed the markets' focus on credit quality.
Sales of junk-rated debt have tumbled by almost $8 billion to $18.8 billion this month, according to Refinitiv, while the number of deals has fallen to 27 from 43.
Yet there are signs that investors are slowly becoming more adventurous.
Jorgen Kjaersgaard, head of credit at Alliance Bernstein, noted that average yields on the U.S. Bloomberg Barclays corporate high-yield index had already tightened some 90 basis points this year. He predicted a further tightening of 15-20 basis points in the first quarter.
"The market has been priced too wide, as growth has been revised downwards," Kjaersgaard said. "But this is not a recession. It is lower growth in Europe and the U.S., but it is still growth. People over-reacted."
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