CEE Bonds

The shock sacking of Turkey’s third central bank governor in two years confirms to investors that the country lives in a world of its own — one in which central bank independence and fiscal prudence come second to the ideologies of the leader.

A handful of bond mandates from the CEEMEA region this week suggests that issuer confidence may be on the rise across emerging markets after a particularly turbulent period of sell-offs in US Treasury bonds.

An imminent bond issue from Turkey is looking unlikely, investors say, after the abrupt sacking on Saturday of Naci Ağbal, governor of the central bank, just a day after he had raised interest rates by 200bp. Both hard and local currency bonds have sold off and market participants fear a balance of payments crisis.

A wave of central bank rate hikes across emerging markets over the last week, particularly in CEEMEA, has stimulated investor confidence amid a volatile period in global markets. The recent rise in US Treasury yields had threatened to pull money away from EM, with a further risk of weakening local currencies.

Bond markets have been settling in for a period of higher US Treasury yields since Wednesday when the Federal Reserve confirmed it did not expect to raise rates before 2024. While that made long-dated issuance trickier for SSA issuers, there was hope that emerging market bond issuance will soon resume, even if a bumpy ride lies in wait. Mariam Meskin, Oliver West and Lewis McLellan report.

Všeobecná úverova banka (VÚB) issued a €500m five year covered bond on Wednesday at the tightest spread for any issuer from Slovakia.

Russian Railways ventured into the Swiss franc market this week to sell the first hybrid corporate bond in over two years, a sign of a maturing Swissie market, according to local market participants.

Despite the disruption that the coronavirus pandemic and, more recently, volatility in global markets have brought to emerging market debt, issuers in the CEEMEA region are not backing away from their pivot towards ESG financing. Though concerns about greenwashing are holding the market back, new sustainability-linked and transition structures are tempting issuers.

Všeobecná úverova banka (VUB) issued a €500m five year covered bond on Wednesday at the tightest spread for any issuer from Slovakia. At the same time the Mortgage Society of Finland issued a sub-benchmark sized 10 year at close to fair value. The resounding outcomes for both deals partly reflected the generous spreads on offer. At the same time OP Mortgage Bank has announced plans to issue its debut green covered bond.

Russian Railways issued a rouble bond on Thursday. Russian companies may steer away from the dollar market as discussions around fresh sanctions on Russia continue.

Turkey's international bond market access is once again in question. Rising US Treasury yields have put affordable dollar funding beyond the sovereign for now, bankers believe, undoing the good done by a move back to orthodox monetary policy late last year, after months of inflation and a plunging lira. A rate hike next week may help restore issuance prospects, writes Mariam Meskin.

A flurry of Swiss franc issuance dusted the market this week, as domestic and foreign borrowers entered a more settled market.