Emerging Markets Burdened by Global Interest Rate Hikes, Junk Bond Issuance Plummets

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Emerging countries with sovereign credit ratings at speculative grade levels have significantly reduced their government bond issuance this year due to the burden of interest rate hikes by major countries including the United States. While U.S. Treasury yields hover around 3%, emerging market bond yields have exceeded 20%, prompting these countries to seek alternative funding options such as International Monetary Fund (IMF) support.

On the 21st (local time), Bloomberg News reported based on its own data that the issuance volume of government bonds by speculative-grade emerging countries amounted to $18.6 billion (approximately 24.9 trillion KRW) as of the 18th of this month. This is the smallest issuance volume recorded for the same period since 2016 ($20.7 billion).

Bloomberg noted that September is generally the peak period for bond issuance by speculative-grade countries, but this year it is expected to decline sharply due to the impact of the U.S.'s aggressive tightening monetary policy. Investment banks such as Morgan Stanley, JP Morgan, and Goldman Sachs anticipate that as bond yields reach their highest levels in three years and credit ratings remain low, it will become increasingly difficult for these countries to access the market, resulting in reduced external debt issuance by speculative-grade countries.

Marcelo Asalin, Head of Emerging Market Bonds at global investment bank William Blair, stated, "The unfavorable funding conditions for speculative-grade countries will persist," adding, "There is expected to be little movement in major government bond markets in the near term."

Speculative-grade countries had been raising funds by issuing large amounts of government bonds in a super-low interest rate environment until the U.S. Federal Reserve (Fed) began raising rates in March. However, Brazil, once a major player in this market, has not issued government bonds denominated in dollars or other major currencies since June last year, and Oman and Egypt have also refrained from issuing bonds in overseas markets. Bloomberg predicted that with bond yields exceeding 20% in speculative-grade countries such as Ghana and El Salvador, liquidity could worsen further if Fed officials, including Chairman Jerome Powell, deliver additional tightening policy messages at the upcoming Jackson Hole Symposium next week.

Earlier, Japan's Nihon Keizai Shimbun reported on the 15th, citing financial information company Refinitiv, that as of the 10th of this month, 15 countries had 10-year government bond yields exceeding 10%. More than half of these countries (8) are African nations, alongside T?rkiye, Kazakhstan, and Colombia.

As it becomes increasingly difficult for speculative-grade emerging countries to raise funds through government bonds, requests for assistance from the IMF and others have surged. Ghana has been negotiating with the IMF since last month, reportedly aiming to secure up to $3 billion. Bloomberg also reported that El Salvador plans to use the IMF's Special Drawing Rights (SDR) to repurchase $800 million worth of bonds maturing in January next year. According to Nihon Keizai, the IMF's SDR support balance reached $143 billion as of the end of July, a 47% increase compared to 2019, marking an all-time high. This surpasses the level seen during the 2008 global financial crisis.

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