Bankers predictions, particularly those made in the depths of despair, are not always right. While wading through the quagmire of a disastrous third quarter in 2011, bankers said they expected CEEMEA volumes in 2012 to fall further. They were proven wrong, and in spectacular fashion.
Not only had the more than $150bn of bond issuance printed by the end of November 2012 in CEEMEA already usurped 2011s full-year total of $114bn, but it had also been the best year ever for the region. The previous record of $132bn, set in 2010, trails well behind.
"The year 2012 was the coming of age of EM bonds," says Alex von Sponeck, managing director of CEEMEA financing origination at Bank of America Merrill Lynch in London.
"Finally it seems to be an asset class in its own right, with its own sets of issuance, investor appetite strong and defined, and enough liquidity and risk tolerance to support it."
Volumes were boosted by some notably large deals such as Russias $7bn in March and Qatars $4bn in July. The top 10 largest issues accounted for around a fifth of total volume, in a year that saw 228 deals to the end of November.
"The market has never had it so good," says Nick Darrant, head of CEEMEA syndicate at BNP Paribas in London. "Were entering Field Of Dreams territory here: build it and they will come."
The pace gathered through the year, with the volume and number of deals branching out as the rally continued unrelentingly in the second half. So much so, that in September and October there was a flood of riskier Russian subordinated debt issues and lower rated names mixed in with the investment grade flows.
Bankers say that appetite for EM in the third quarter of 2012 was so strong that credits that were considered to be locked out of the market such as Hungary, Ukraine and Egypt would all be able to find appetite if they paid a certain new issue premium. Even credits such as Iraq would be welcome if the issuer chose to go ahead, bankers say.
The futures bright
The question remains, however, as to whether 2012 was a one-off created by a combination of investors search for yield and an aversion to European and other developed market risk. The last few years have seen the CEEMEA bond market flit between rallies and sell-offs, and some bankers fear that after a tightening in autumn 2012, a sell-off could be around the corner.
But the fears seem to be driven more by memories of a boom and bust cycle than anything more concrete.
"Were worried about a correction but its difficult to see what will prompt one at this point," says Ray Zucaro, portfolio manager at SW Asset Management in California. "Fundamentals still look good, the asset class has grown and with Obama in place the low interest rate environment looks set to continue for a long time."
According to EPFR Global, a data provider, emerging market bond funds had taken in $45.34bn by mid-November, with much of those flows made up of new investors in the region.
"The structural rebalancing of portfolios in favour of growth markets still has a long way to run, and this will continue to entice issuers into the market with greater size and frequency in 2013," says Darrant.
EM bankers are expecting an orderly start to 2013. While in 2011 several borrowers held off from issuing until January 2012, in the hope that the new year would bring better issuing conditions, in 2012 much of the pipeline was digested.
"There should be a healthy, natural order of issuers in the first quarter of 2013, as very littles been held back," says von Sponeck.
The biggest testament to bankers confidence in the market is the expectation of hiring on some of the EM desks in London.
Although 2012 saw culls of EM desks continuing in some banks that have historically been strong in CEEMEA such as Credit Suisse and UBS those that have been relentlessly refusing to let go of that business are expected to have to take on more staff to cope with big volumes.
"A lot of banks were wrong-footed by the rampant growth in EM bonds in 2012 in cutting back on execution resources," said Darrant. "They wont want to make the same mistake twice."
Barclays, Citi, Deutsche Bank and HSBC are well staffed on EM desks, but bankers say that some others such as BofA Merrill and Goldman Sachs, which have light teams, are likely to be looking to hire.
That, combined with an expansion of some newcomers in the international market such as VTB and Sberbank, means that bond bankers jobs in CEEMEA are looking safer than they have done in the last five years.That really does give EM bankers something to celebrate.