By Sujata Rao
LONDON, Sept 20 Global borrowers are hitting the
bond roadshow trail, aiming to raise hundreds of billions of
dollars in cheap financing after the U.S. Fed's surprise
decision to keep its money taps open for a few more months.
As the bond issuance window unexpectedly swung wide open, a
total $16.6 billion was raised on global bond markets on
Thursday, leaping four-fold from the day before, Thomson Reuters
data shows, while over 20 borrowers worldwide - from Italy's
Intesa to Saudi conglomerate Sabic - announced issuance plans.
Among those to arrive on the scene was junk-rated Armenia's
7-year deal - dubbed the Kardashian bond - that investors were
happy to buy at 6.25 percent yield. At the other end of the
rating spectrum, A-rated U.S. conglomerate Cummins raised
10-year and 30-year cash at 3.75 percent and 5 percent
This is only the beginning of the debt explosion, however.
Investors reckon the boom could last at least until year-end
as the Federal Reserve's Wednesday decision to postpone cutting
its $85 billion-a-month stimulus effectively allows the cost of
cash to stay lower for a bit longer.
"To issue bonds, you need attractive yields ideally and a
cruise-speed market environment, that is, no volatility, no
risks looming," said Xavier Baraton, global CIO for fixed income
at HSBC Global Asset Management in New York. "The market moves
we have seen since (Wednesday) address those issues."
The Fed has precipitated a steep drop in market volatility
as well as U.S. Treasury yields, the benchmark off which all
other assets are priced. So-called tapering is not now expected
before December, while no rate rises are likely until 2015.
"There is a pricing opportunity now with 10-year U.S. yields
being 15 basis points lower," Baraton said. "We can expect to
see a deluge of new issues coming in."
DROUGHT TO DELUGE
The deluge had kicked off even before the Fed meeting, with
many borrowers seeing early September as a last-chance saloon of
sorts to raise cash cheaply.
Emerging sovereign bond sales were $13.5 billion in the
first half of September, versus past averages of $2.2 billion a
month. Russia and South Africa were among those that paid hefty
yield premiums to get their deals done in time.
But the market flowered after an extraordinarily barren
summer, which saw emerging markets' debt sales for instance
slump to a fifth of year-ago levels in June and July.
U.S. high-yield issuance too was just $65 billion by
Thursday for the July-September period - a third less than the
same 2012 period, Baraton estimates.
Emerging markets will likely be prime beneficiaries of the
Fed's decision to extend the flow of cheap money, says
Pierre-Yves Bareau, CIO for emerging debt at JPMorgan Asset
"The idea is, it will be a smooth transition in terms of
exit from liquidity conditions and this will allow emerging
markets to survive the cycle more easily," Bareau said.
That's especially so given many developing economies have
run down their hard currency reserves over the summer as they
battled to defend their weakening currencies.
"This is the best time for sovereigns like Croatia, Serbia,
Slovenia, Hungary, Ukraine and even Turkey to build up hard
currency reserves at a reasonable price," Commerzbank said.
Turkey which has met only two-thirds of this year's $6.5
billion foreign borrowing plan, named banks on Thursday for a
sukuk Islamic bond. Hungary has filed papers to borrow up to $5
billion, possibly intending to use some cash to pre-fund 2014.
The Fed has also offered another chance for those seeking to
raise cash to wrap up merger deals - the motivation behind telco
Verizon's jumbo deal on Sept. 11
And for cash-strapped euro zone sovereigns Spain and Italy,
this is an opportunity to lock in some cheap cash - so far they
have completed three-quarters or more of 2013 borrowing targets.
"If I was in charge of the funding in either of those
countries I would be keen to take (advantage) of the situation,"
said Philip Tyson, a strategist at ICAP in London. "I would have
thought that it would be prudent to try and get as much
pre-funding in ahead of next year as possible."
One thing is clear however: this is a grace period, not an
open-ended blank cheque.
"The Fed is eventually going to be tapering so it's not as
though reduced liquidity is out of the picture entirely," said
David Spegel head of emerging debt strategy at ING Bank.
That there is appetite for risk was proved by the $700
million Armenian deal which took over $2 billion in bids.
Russian Gazprom's £500 million offering garnered bids of over £5
billion, allowing it to sharply cut the yield on offer.
Investors also have money to deploy - global funds' cash
holdings are at year-highs, Reuters polls show.
But aside the inevitable end to money-printing many
investors are fretting about the possibility of a prolonged
squabble over raising the U.S. debt ceiling to allow the
government to keep borrowing. An impasse over the issue in 2011
cost the United States its triple-A rating and could badly dent
market confidence if repeated.
All that will keep investors uneasy and U.S. yields around
2.6-3.0 percent, well off pre-May lows, HSBC's Baraton reckons.
"Issuers will get better conditions but we are not going to
go back to normal," he said.