Emerging Markets Dodge Fed Tapering in Best Bond-Sale Start

Borrowers in developing nations are flooding markets with a record amount of bonds before reductions to Federal Reserve monetary stimulus drive up funding costs.

International sales in emerging markets are up 21 percent to $55 billion this month, the busiest start to a year since Bloomberg began tracking the data in 1999. Poland is marketing $2 billion of 2024 bonds today after the European Union’s largest eastern economy raised 2 billion euros ($2.7 billion) last week. Petroleo Brasileiro SA, Latin America’s largest oil producer, has sold the most debt among 108 issuers with a $5.1 billion offering of euro- and pound-denominated securities.

Companies and governments in developing countries are seeking to pre-empt any rise in borrowing costs that could result from the next round of tapering by the Fed, which decided in December to trim monthly bond purchases by $10 billion to $75 billion. U.S. policy makers next meet Jan. 28-29.

“Issuers want to tap the market now as they fear that Fed tapering and a rise in U.S. Treasury yields will lift their own funding costs,” Regis Chatellier, a London-based director of emerging-markets credit strategy at Societe Generale SA, said by e-mail yesterday. “They simply don’t want to take that risk. So I expect new issuance to remain strong, for now.”

The acceleration in developing-country bond sales comes as global issuance declined 9 percent this year to $271 billion, according to data compiled by Bloomberg.

Eastern Europe

Mexico, Indonesia and energy company Petroleos Mexicanos have each sold $4 billion of debt, the data show. Central and eastern European governments are also among the 10 biggest borrowers, with Poland, Slovakia, Romania, Latvia and Lithuania raising a combined $8.8 billion, excluding today’s Polish sale.

Slovenia hired banks for investor meetings in the U.S. and U.K. from Jan. 21 for a possible benchmark-sized dollar sale, a person familiar with the matter said today, asking not to be identified because the terms aren’t set. PKO Bank Polski SA, Poland’s largest lender, sold 500 million euros of five-year bonds today.

Emerging European nations are more resilient to Fed tapering than peers that are struggling to contain budget and trade deficits, according to Chatellier and Timothy Ash, a strategist at Standard Bank Group Ltd.

“While many larger emerging markets have deep underlying problems, and indeed much have less compelling stories, emerging European credit offers value on a risk/reward perspective,” London-based Ash said by e-mail yesterday.

Lower Yields

Yields on Poland’s 2023 dollar bonds have fallen 25 basis points, or 0.25 percentage point, this month to a two-month low of 3.95 percent at 5:25 p.m. in London. The country’s similar-maturity euro notes yield 2.76 percent.

The Federal Open Market Committee Meeting will reduce the monetary stimulus in $10 billion increments at its monthly meetings, according to a Jan. 10 Bloomberg survey of economists.

Within a month of Fed Chairman Ben S. Bernanke first bringing up tapering plans on May 22, the yield on the Bloomberg U.S. Dollar Emerging-Market Composite Index surged about 1.25 percentage points. The rate fell to a two-month low of 5.14 percent yesterday.

Yesterday’s bond sale by Petroleos Mexicanos, the state-owned oil company known as Pemex, included $3 billion of 30-year bonds, a record for an emerging-market corporate issuer.

Romania plans to issue euro-denominated notes in the first half, Budget Minister Liviu Voinea said yesterday. The European Union’s second-poorest country raised $2 billion this week, including securities maturing in 2044.

That’s the longest tenor for dollar debt in the region, Abbas Ameli-Renani, a London-based strategist at Royal Bank of Scotland Group Plc, said in an e-mail yesterday. The offering shows Romania is “oozing with confidence” due to “prudent” fiscal management and improved economic balances, he said.

The following table shows the 15 biggest borrowers in emerging markets this year.

Issuer                       Amount Raised
======                       =============
Petroleo Brasileiro SA          $5.14b
Petroleos Mexicanos             $4.00b
Mexico                          $4.00b
Indonesia                       $4.00b
Poland                          $2.72b
Slovakia                        $2.04b
Romania                         $2.00b
Export-Import Bank of Korea     $1.67b
China Investment Corp.          $1.66b
Korea Finance Corp.             $1.50b
Philippines                     $1.50b
Latvia                          $1.37b
Sri Lanka                       $1.00b
Guangzhou R&F Properties Co.    $1.00b
Korea National Oil Corp.        $1.00b
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