The yield on the 10 year US Treasury is now at or above most predictions for where it will sit at the end of the year. But if it falls and meets those predictions, the happy ending at the end of this chapter for the plucky EM borrowers that were riding out rates volatility before bringing new issues is more than a few page turns away and far from guaranteed.
For most of last year the start of US monetary tightening was the bogeyman in EM bond markets. Indeed, it borders on cliche to suggest in EM bond markets that whatever local crisis is brewing, the keystone to new issuance is what the Fed is up to.
As US Treasury rates nudged higher, EM syndicate and DCM bankers — and to some extent investors fed up of waiting in limbo for the axe to fall — longed for the plateau where rates had reached their new normal and the Fed's policy changes were priced in.
With the 10 year US Treasury around 3%, that day has come. If we were living in the future that was promised, we should be now seeing new issues abound. Alas, we are not.
Despite the Federal Reserve having done its utmost to communicate its moves in advance of its meetings and decisions, US Treasury yields are still whipping about in the order of 30bp in a day.
Finally, perhaps, the biggest determinant of EM bond issuance is what is going on in EM. There are a host of factors that are affecting not just EM issuer's chances directly, but also feeding into a global backdrop that makes Fed policy just one factor in the rates and macroeconomic picture.
US inflation at around 9% is way, way off its 2% target and there are plenty of shocks that could come. The risks to the supply of oil, gas and wheat, among other commodities, from Russia and Ukraine could stoke inflation further, while the effect of China's Covid lockdowns on global supply chains is another factor.
Inflation is at shocking levels in emerging market economies themselves too. It is 70% in Turkey — an extreme case — but also 14% in the Czech Republic, 13% in Egypt and Georgia, for example, and 10% in Uzbekistan.
That said, some investors are more gung-ho than others, as demonstrated by Development Bank of Kazakhstan printing its $500m three year bond last week. Buyers for new issues exist even in brief periods of stability, even while others continue to eye the market nervously.
But in this market there is no such thing as a reopening trade that acts as a bellwether for other borrowers. DBK took that money in a brief window that appeared, and that window was closing even as the ink on the deal was drying.
That will likely be how the rest of the year goes. With so much geopolitical upheaval overshadowing what the Fed can control, EM issuers will have a very tricky path through their funding tasks. Market stability is a long way off and they will need to have eyes everywhere.