Developing Countries' Funding Eases... $83 Billion Bond Issuance Since April

Fed's Dollar Liquidity Supply Success
Emerging Markets Urged to Watch Rising Bond Trends

[Asia Economy Reporter Naju-seok] The financial lifeline of developing countries, which had struggled to secure funds in the international financial market since the outbreak of the novel coronavirus disease (COVID-19) pandemic, has begun to open up.

According to the Institute of International Finance (IIF) on the 14th (local time), the amount of funds raised by developing countries such as Israel, Qatar, and the United Arab Emirates (UAE) through the international bond market since early April reached $83 billion (99.93 trillion won). This is a significantly different situation compared to just three months ago. In March this year, developing countries not only halted bond issuance but also faced a liquidity crisis as overseas investors withdrew $83 billion, the largest amount since the 2008 financial crisis. However, recent fundraising shows that the capital markets of developing countries have reached a turning point since the COVID-19 pandemic.

Robin Brooks, Chief Economist at the IIF, explained, "There is a rebound trend," adding, "The supply of funds is normalizing."

Countries with investment-grade credit ratings such as Israel, Saudi Arabia, and Qatar accounted for more than 60% of the total funds raised, but non-investment-grade countries including Guatemala, Paraguay, Serbia, Egypt, Albania, and Brazil also succeeded in issuing bonds.

In Brazil's case, it successfully issued $3.5 billion in bonds this month. The 5-year maturity bonds were issued at 3%, and the 10-year maturity bonds at 4%, with interest rates lower than initially expected.

Uday Patnaik, Head of Emerging Market Bonds at Legal & General Investment Management, introduced, "In May, developing countries recorded the highest ever issuance of hard currency bonds (bonds denominated in dollars or euros). Although mainly issued by investment-grade countries, bonds were also issued by speculative-grade countries in Sub-Saharan Africa and Latin America."

Experts analyzed that the improvement in the financial situation of developing countries was largely due to the role of the U.S. Federal Reserve (Fed). The Fed not only conducted quantitative easing by purchasing bonds but also supplied dollar liquidity through dollar swaps with major central banks. Jim Barrino, Head of Emerging Market Bond Strategy at asset management firm Schroders, explained, "The Fed's firehose reached even developing countries," adding, "The revival of risk appetite and the resumption of economic activities in some countries have enabled the market to return to normal conditions."

However, experts still urged caution. This is because the overall economic recovery outlook remains bleak, and additional funding needs are inevitable for developing countries. Stuart Culverhouse, Chief Economist at developing country research firm Tellimer, predicted, "In many countries, fiscal deficits are expected to increase by double digits or more relative to gross domestic product (GDP)," adding, "The demand for funds to be raised through bonds and other means will grow."

This content was produced with the assistance of AI translation services.