The sale of dollar bonds from developing countries sunk to the lowest since 2021 in August as global yields spiked to multi-year highs and 15 emerging nations traded at distressed levels. Only $1.4 billion has been raised in emerging debt this month, compared with $4.5 billion in August 2022 and average monthly sales of $15.4 billion this year.
Tighter global monetary conditions are pushing both borrowers and investors to seek alternative funding routes such as loan syndication, conservation-linked securities and local-currency bonds. Such instruments can ease governments’ costs of borrowing while minimizing currency risk and uncertainty over refinancing.
“Less supply would be positive from a technical standpoint, especially if the issuers are going to the loan market,” said Uday Patnaik, London-based head of emerging-market fixed income at Legal & General Investment Management. “The problem would be if the issuer could not find alternative funding sources.”One area for which capital is more readily available is environmental protection.
“Market conditions will remain challenging, especially for the most vulnerable frontier economies,” said Bartosz Sawicki, a market analyst at Polish financial technology company Conotoxia. “Consequently, the rise in popularity of syndicated loans, which spread the risk of default between parties, will probably prevail.”But if reducing reliance on dollar-bond sales is the goal, nothing beats developing an active local market.
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