The Federal Reserve’s surprise move on Wednesday to delay reductions in its quantitative easing programme had EM issuers chomping at the bit to do deals. Borrowers that were unwilling to print are stepping forward, and many are looking to fund not just for the end of 2013, but for much of 2014 too. This is a golden opportunity that EM bankers must manage responsibly.
After all, investors are not to be taken for granted. The rally that took hold on Wednesday afternoon and Thursday morning ran out of fuel quickly and investors moved to correct any over-tightening within a matter of hours.
The improvement in bond prices was not as much as was hoped for and investor confidence is fragile.
They are willing to buy, but not with the desperation for yield that they had earlier in the year. After a summer of turmoil, they are selective and easily spooked.
They are also big fans of regular profit taking, which is a long forgotten art in EM where the bull market of the last few years has seen little need for such finesse.
Some countries' current account deficits look just as alarming as they did last week. Downgrades such as those suffered by Croatia and Ukraine in the last few days will not help. And of course, sooner or later the fear of QE being tapered will return.
There will be a temptation for issuers to strike while the market is hot. They may want to squeeze every last basis point out of investors with the plan to not return for a year and to blame any poor deal performance on external conditions.
You would hope investors would not be stupid enough to fall for such deals. But as the poor performance of the $1.6bn 2024 Colombia deal has shown since it was priced on Thursday, that may be a hope too far.
Banks are trusted by both investors and issuers to find a fair price for deals. Should investors be trampled by a series of bonds which trade down after pricing, they may not come back for more.
It is in the banks’ interests to keep the market open for as long as possible but to do so they need to be firmer than usual about what borrowers can achieve.