Thirsty EM buyers can have few complaints over secondary weakness
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Thirsty EM buyers can have few complaints over secondary weakness

Investors keep showing up for deals that cheapen on the break

Skyscraper skyline, Doha, Qatar

The slow secondary market performance of new CEEMEA bonds is no cause for complaint for emerging markets bond investors hungry for new debt, given many are sticking with the issuer throughout the pricing process.

Issuance volumes have been high in the past two weeks. Issuers have been drawn to print by tight spreads — so tight that Qatar, albeit one of the highest rated EM sovereigns out there, was able to land at the tightest ever spread for a CEEMEA sovereign dollar bond.

The pricing, in nearly all cases flat to or inside fair value, has led to many bonds widening in secondary on a spread basis.

Investors do not like that but they can have few complaints. They stayed in the order books throughout pricing, knowing issuers were going to be landing at a tight spread and that further secondary performance was unlikely.

They could have rescinded their orders, as many did in Qatar's and Latvia’s deals, which suffered heavy book attrition.

Many of those investors that kept their orders are there for the long haul, and may say that they do not care about a near-term secondary sell-off. A few weeks of poor spread performance will be forgotten as they enjoy Qatar’s 4.625% coupon for five years — as close to free money as it gets in EM.

But they will care. Many fund managers will have to mark positions to market, meaning losses that can be “brutal”, as one EM fund manager told GlobalCapital earlier this month. End clients won't enjoy that one bit and outflows will continue, possibly forcing sales of the underwater assets.

But at least it isn't all doom and gloom, for all those that held back from tight initial pricing, there will be a chance to pick up paper on the cheap in the aftermarket.

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