The Dollar Bond Party Comes to Frontier Markets

  • Papua New Guinea plans $500m 5-year debt sale later this year
  • Spreads on Asian junk bonds are near lowest since 2013

Loi Martin Bakani.

Photographer: Anthony Kwan/Bloomberg

Talk about risk-on: the demand for higher-yielding securities is proving so strong that Papua New Guinea, one of Asia’s poorest nations, is contemplating a debut issue of dollar bonds.

The southwest Pacific nation plans to raise $500 million in five-year bonds, central bank governor Loi Martin Bakani said Tuesday at the Credit Suisse Asian Investment Conference in Hong Kong. The country would join Mongolia among sub-investment grade issuers in 2017. Sales of high-yield bonds total almost $15 billion so far this year, according to data compiled by Bloomberg.

It’s part of a broader trend of enduring strength in emerging markets that are weathering the U.S. Federal Reserve’s monetary tightening cycle with aplomb. Concerns about trade wars and the potential renewed decline of commodity prices have been set aside for now, with the long-awaited end of the global bond bull market seeming to be on hold.

“There is strong appetite for frontier issues -- and markets have taken the Federal Reserve tightening policy in their stride,” Stuart Culverhouse, chief economist at Exotix Partners LLP in London, said by phone. Issuers in the single-B tier -- the second-highest in the junk rating scale -- have found yields “are not prohibitively high for their financing needs,” he said.

With U.S. Treasuries range-bound and volatility in broader markets remaining subdued, investors have piled into high-yield borrowers. That pushed down the premiums on Asian junk bonds to 411.9 basis points on March 3, a near four-year low, according to JPMorgan Chase & Co. Indexes.

Papua New Guinea aims to woo buyers from Asia, Europe and the U.S. for its bond sale in the second half of the year. This isn’t the country’s first attempt, after it hired banks in 2013 for an issue of dollar-denominated securities that didn’t pan out. Success this time would follow several years of current-account surpluses for the natural-resource dominated economy -- though the period has seen slower growth and wider fiscal deficits.

Mongolia, which has been struggling with a shrinking economy, ballooning budget deficit and debt downgrades, benefited from a rebound in copper and the prospect of an International Monetary Fund rescue package to pull off its sale of $600 million seven-year debt earlier this month. Sri Lanka is also planning a $1.5 billion bond sale.

— With assistance by Eric Lam

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