Bond issuers in emerging markets, particularly in the Persian Gulf, need to quickly accept that the golden primary market they enjoyed earlier this year is gone, even if the Middle East war ends tomorrow.
The war has knocked spreads and yields wider for most issuers in CEEMEA, raising issuance costs even before factoring in the chunkier new issue premiums investors will demand.
It will be some time before curves settle back to where they were before the war, regardless of when hostilities end.
The war has caused massive disruption to the world economy and it will take months for supply chains to normalise. Inflation is already rising, and it is likely to accelerate.
Central banks are recalibrating interest rate paths and rate increases are possible where, a month ago, they were off the cards.
All this means that, for the first time for more than 18 months, fixed income is not a one way bet. Throw in a risk premium for the threats to the Gulf's security and its oil and gas revenues, and bond funding will be a lot dearer for Middle Eastern borrowers than they have become accustomed to.
Central and eastern European borrowers suffered this after Russia invaded Ukraine, and that price premium lasted a long time.
It also took a long time, when interest rates shot up after the 2022 invasion, for some CEEMEA issuers to accept the new reality of the primary market. They cannot do that again.
The days of printing big deals with hefty tightening from initial price talk, and pricing flat to or inside secondary market curves, are gone, for at least a few months.
Issuers — especially those in the Gulf which are more sensitive to pricing than many other CEEMEA borrowers — need to accept that. If they fail to, when they return to market they will find investors forbidding.