Sovereign borrowers like to frontload and 2014 has been no exception. First came Sri Lanka, with a $1bn five year on January 7 that kicked off a trio of chunky deals last week. Indonesia came next, with a dual tranche deal that was little short of an extravaganza. Investors came in droves — especially the Americans, but they love to super-size. They devoured the $4bn deal, which saw a mammoth $17.5bn in orders.
Finally the Philippines provided the clearest justification for striking while the iron is hot, issuing a $1.5bn 10 year at 4.2% as it switched investors out of some $1bn of debt ranging from 6.5% to as much as 9.5%.
The result has been a barnstorming start to the Asia ex-Japan sovereign funding year. The $6.5bn already raised matches the whole of 2013’s issuance. That looks extraordinary, particularly given the fact that bankers consider it unlikely that the region’s bond markets will see this year the kind of shutdown that followed the first talk of US quantitative easing tapering in 2013.
So why the big rush? One reason is the scale of the task: some bankers reckon that Asian sovereigns will look to raise as much as $15bn in 2014, about as much as was raised in the last two years combined. Fiscal needs are a top priority for EM countries, who typically have outsized foreign currency borrowing requirements compared to developed markets: getting ahead of the rush is important.
It might also be cheaper. Yes, many market watchers talk of tapering being priced in already, but rates are surely only going one way. They have already risen since tapering started in December. Dollar appreciation expected throughout this year makes issuance look more attractive now.
The timing might not be for everyone. Thailand, an investment grade issuer, is unlikely to be rushing in at a time when it would be penalised by buyers because of its ongoing domestic turmoil.
But others should be looking to grab an opportunity while it lasts. In particular, Vietnam, Papa New Guinea and Bangladesh will have painful memories of having been poised to come to market last year before issuance ground to a halt. Pakistan, meanwhile, has its sights set on a $750m bond, its first international issue in six years.
To judge by the first deals of the year, they will find a warm welcome from investors. The quality of orders for Indonesia’s deal was particularly notable. And flows have turned again: EFPR, a data provider, last week reported the first EM bond inflows after 15 consecutive weeks of outflows.
US policy will continue to play a big part in issuance prospects for Asian sovereigns. But those that are ready to do so should jump into January’s market sweet spot. Their reward might be an order book — and a cost of funding — that in six months’ time might be the stuff of dreams.