If all their competitors are picking up a bargain in great size thanks to a chunky new issue concession, a portfolio manager has no choice but to at least take a look. Here, it would be likely to have the opposite effect.įirstly, new deals force investors to engage with issuers. Usually, adding supply to a weak market would compound the pain. Even if a bond does suddenly look irresistibly cheap, it is hard to source an amount that would make the investment worthwhile for a major institutional player. With no signs of a rally any time soon, and no proof that these issuers will regain market access, there’s little incentive for investors to start playing. But there are plenty of borrowers, particularly in the lower investment-grade or higher double-B bracket of EM, that probably do have access yet still shy away - largely as secondary market levels suggest they would have to do so at unappealing levels. It creates a vision of a broad-based credit crunch for high yield borrowers, and undoubtedly there is a host of low-rated issuers that simply would not be able to raise funding in bond markets. But - as has been seen in the curves of several struggling Latin American corporates, in particular - the merest sign of bad news can see bonds marked down 10 or 15 points in a day. With a nervous investor base, it’s hard for deals to get marked much higher. It’s an open secret that quotes on bond prices, especially beyond the sovereigns, quasis and blue chips that have made up most of recent issuance, are often jumping around based on very little meaningful trading. Part of the problem is that secondary market levels, which investors say are as illiquid as they’ve ever been in EM, are unreliable. Some investors are talking about a potential return for credits that were almost distressed just months ago, with Nigeria’s market-friendly decision to let its currency float having earned praise from analysts.īut EM syndicate bankers have felt excited about the pipeline on several occasions over the past year, only to be disappointed when another window slips by with minimal activity. Syndicate bankers are reporting more mandates - even in the almost entirely dormant world of Latin American corporates - as issuers gain confidence that there’s some stability out there in the rates market. With the Fed finally pausing its rates cycle this week, some have decided that enough’s enough, it’s time for a rally, prospects of the further 50bp increase that the dot plot is indicating be damned. After a torrid 18 months, EM bond markets appear to have something resembling a spring in their step.
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