Barclays reckons that there will be a surge in EM bond issuance next year, and that it will be driven by the large refinancing needs of EM sovereigns. The bank says EM governments are expected to issue $94bn in new hard currency bonds in 2014 — an increase of more than 20% from what is expected this year and higher than was done in 2012, the record year so far.
But wanting to print a bond and printing a bond are two different things. Bank of America Merrill Lynch also released a research report this week calling US Treasury bondholders too complacent over the risk of quantitative easing tapering. They say investors are expecting too smooth a ride. The fate of QE could well determine the amount of market access EM borrowers enjoy next year.
Yes, EM sovereigns have refinancing needs and their first port of call will be the Eurobond market. But they have a variety of other options open to them if the conditions are too stormy to dock there.
They can head to the syndicated and bilateral loan markets, for example. Failing that they can speed up privatisation plans. And if they are really set on bond issuance, they can revert to ever deepening local markets.
Keeping out of the Eurobond market for a year need not be so difficult. If conditions in 2014 look dicey with issuance windows in the market banging open and shut more often than in a 'B' movie haunted house, then borrowers will happily stay away. Rosneft’s renegotiation of its huge loans this year rather than coming to the bond market is a handy example of this in action.
Other issuers have been tapping the international bond markets this year with pre-funding deals, choosing to print before the market hurtles into its next potential taper tantrum.
Hungary and Croatia were both in the market this week for $2bn and $1.75bn respectively, joining Turkey, Poland and Romania, which have already printed bonds to pre-fund a chunk next year's borrowing requirement.
That’s a bigger glut of pre-funding than has been done in previous years, which means some of 2014's deal flow has already been and gone.
Barclays has been punchy with its prediction for next year, and it could well be right. But without a constructive environment, turning potential supply into new paper may remain more pipe dream than pipeline.