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Capital Markets Weekly: Emerging market issuers resist market volatility

17 February 2022 Brian Lawson

Market conditions have been difficult during the last two weeks. Against a background of high inflation, pending monetary policy tightening and uncertainty over Ukraine, reference yields continued to rise with the 10-year Bund reaching a 0.32% yield, having reverted from negative yields only last month, and the US 10-year Treasury Bond breaching the 2% barrier after further adverse inflation data.

Wider malaise in bond markets is indicated by yields on Southern European bonds: Greece's 10-year yield rose on 7 February to 2.55% (and now stands at 2.60%), its highest level since mid-2019, with Italy's 10-year yield reaching 2% on 15 February. Italy's 10-yield had been as low as 0.53% in August 2021, and below 1% as recently as 20 December: Greece's was below 1.2% during mid-December 2021.

Despite the adverse yield trend and volatile conditions, Turkey, Dominican Republic and Slovenia all issued successfully this week, although Bolivia needed to extend a planned debt sale and liability management exercise. There also have been positive indicators of a continuing "duration bid", notably through long-dated sales by Belgium and Bristol-Myers.


Turkey's Ministry of Finance completed a US3 billion dollar-denominated sukuk deal, its first international bond sale in 2022. It opened books on 16 February, giving initial price guidance of 7.5-7.625% for the five-year deal, with books reaching USD10.75 billion: the issue was priced at 7.25%. Its Finance Ministry stated that the issue attracted demand from over 200 accounts. 66% of the deal was allocated to investors in the Middle East, with 12% each sold in the US and UK.

As a comparison point, it issued USD2.5 billion of sukuk debt in mid-June 2021, gaining USD9.3 billion in demand from over 200 accounts and pricing the deal at 5.125% versus 5.5% guidance (with a final spread of mid-swaps plus 427 basis points).

Dominican Republic

The Dominican Republic issued USD3.6 billion of new seven and 11-year debt, in part to fund its liability management program. The new issues were priced with coupons of 5.5% and 6%. In parallel, it announced outlays of USD1.25 billion on its tender for international and domestic notes maturing in 2024 and 2023, repurchasing USD228.7 million nominal of its 6% 2024 dollar bond and USD536 million of its 5.875% amortizing bonds due in 2024. Its Finance Ministry claimed that the operation will cut debt service costs by USD1.2 billion between 2022 and 2024.


Slovenia tapped its March 2032 and October 2050 issues on 16 February. It placed a total of EUR750 million, with EUR400 million for the longer term. The two tranches were priced at mid swaps plus 13 and 68 basis points, having offered initial guidance of spreads of MS+15 bps area and +70 bps area. Demand reached over EUR1 billion for the 2032 notes and EUR1.1 billion for the long-dated portion. On the same day, it announced that it had repurchased some USD600 million of dollar and Euro-denominated debt by tender, with repurchases dominated by the USD576 million tendered in its 5.25% 2024 issue.


Bolivia is also pending with planned issuance.

It announced on 10 February a buyback of up to USD2 billion of outstanding bonds which mature in 2022, 2023, and 2028, to be funded by a new issue. Initially, this was scheduled for on or before 17 February, when the tender was to conclude, but this has been extended to 23 February. It was claimed that as this was Bolivia's first liability management exercise, investors needed more time to consider the operation. Domestic bondholders are offered the right to exchange their holdings for new debt, while international holders could opt for cash redemption. Bolivia's current budget projects international issuance of USD3 billion, in part to fund new public sector investments. The deal has been pending for several months.

Bolivia's indebtedness levels have risen steadily. When it returned to the international markets, its total government debt to GDP ratio stood at 35.4%, which rose to 56.5% pre-pandemic in 2019 and 67.3% in 2020. However, according to Banco de Bolivia's External Debt report, foreign debt as of 30 June 2021 stood at 31% of GDP, versus a 40% reference limit, with debt service costs representing 7.9% of export earnings, versus an indicated limit of 15%, which the central bank describes as "sustainable" and with indicators "below the limits established in international standards".

IHS Markit is less positive on Bolivia's debt trajectory, flagging concern over a general government fiscal deficit during the period 2015-19 "averaging 7.5% of GDP and ballooning to 12.7% in 2020". We forecast "Bolivia will continue to post large deficits in the coming years, although high commodity prices provide some relief". Our latest summary for Bolivia notes that "The 2022 government budget establishes an expected deficit of 8% of GDP predicated on a 5.1% growth forecast, significantly above IHS Markit 3.8% forecast".

Other debt

Belgium sold a new June 2053 syndicated benchmark deal. It raised EUR 5 billion at 1.424%, 12 basis points over its outstanding June 2050 OLO, two basis points inside guidance. Demand reached EUR36 billion from 232 buyers. The issue provided a new issue concession of some 3.5-4 basis points. The Belgian Debt Agency flagged that the offer yield "marks the record for the lowest yielding 30-year OLO syndication ever" and "the largest order book ever raised" by Belgium for this maturity.

Belgium has projected issuance of EUR41.2 billion of OLO debt this year, versus EUR39.2 billion last year, including 10 and 30-year syndications and a future Green Bond, to meet gross borrowing requirements of EUR48.3 billion.

Bristol-Myers showed that the market also remains receptive to longer-dated corporate debt. On 15 February, it raised a USD6 billion package of 10, 20, 30 and 40-year bonds. There were priced at 2.99%, 3.574%, 3.724% and 3.924%, margins of 95, 115, 135 and 155 basis points. All four tranches were tightened relative to initial price guidance, by between 15 to 20 basis points on the 40-year portion to a 25-basis point improvement for the 20-year portion.

There has also been strong demand for top quality short-dated agency paper. The European Investment Bank achieved cover of ten times for its sale on 14 February of EUR3 billion of five-year bonds priced with a 0.375% coupon and 99.535% issue price. ESM followed by tapping its December 2026 bond with EUR2 billion gaining an impressive EUR37 billion in peak demand.

Our Take

Turkey's new bond was well received and heavily oversubscribed. The additional proceeds help to cover pending redemptions, and the country's growing links with UAE also represent a positive indicator externally. While pricing was tightened, it showed substantial deterioration versus issuance in June 2021. This change reflects major adverse country-specific factors but also serves to illustrate the degree of deterioration more widely in emerging market pricing in recent months. Given the upward movement in US treasury bond yields, roughly half the pricing deterioration is driven by the change in the underlying reference bond yield, rather than spread widening for the Emerging Market asset class or Turkey itself.

The completion of issues by Turkey, Dominican Republic, and Slovenia all on the same day is a clear sign that despite tough market conditions, emerging market assets are continuing to enjoy good demand, howbeit at a higher cost.

Overall, Turkey's success is a clearly positive indicator, while Bolivia's delayed new issue and extension of its tender looks somewhat less positive. Failure to complete issuance would be a material adverse sign of mounting debt distress risk for Bolivia.

Posted 17 February 2022 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence


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