One would have thought the brewing tensions in neighbouring Iran — an unravelling economy and the likelihood of an air strike by Israel– would only be a source of concern for Turkey. Every cloud, though….
Data released last week shows how the geo-political crisis has helped Turkey to shrink its massive current account deficit by a third this year. That’s because Iranians, scrambling to ditch their crumbling riyal currency and without access to dollars, have been buying up enormous amounts of gold as an inflation hedge, most of it from Turkey.
LONDON (Reuters) – In the seemingly obsessive search for the next bubble in global markets – an understandable if hyper-sensitised reaction to missing the last one – speculative credit remains a prime suspect.
It’s been boom time again this year for what used to be known as “junk bonds”, but which now go by the more polite moniker of high-yield, speculative-grade debt – much of which is corporate borrowing.
Emerging market corporate debt is in high demand, as we pointed out in this article yesterday. But we noted headwinds too, not least the amount of debt that will fall due in coming years as a result of the current bond issuance bonanza.
David Spegel, head of emerging debt research at ING in New York is highlighting a new danger — that of the exponential increase in speculative grade debt, especially from developed markets, that is up for rollover in coming years. A swathe of credit rating downgrades for European companies this year mean that many fund managers who bought high-grade assets, have now found themselves holding sub-investment grade paper. He calculates in a note this week that $47 billion of “junk” rated European paper will find itself up for refinancing in the first half of next year, more than double the levels that were rolled over in the first half of 2012.
The 60-70 basis-point post-election surge in Venezuela’s benchmark foreign currency bond yields is already starting to reverse.
Despite disappointment among many in the overseas investment world over a comfortable re-election in Venezuela of populist left-wing President Hugo Chavez on Sunday there are quite a few who are already wading in to buy back the government’s dollar bonds. Not surprising, as Venezuelan sovereign bonds yield some 10 percentage points on average over U.S. Treasuries and 700 basis points more than the EMBIG sovereign emerging bond index. It’s pretty hard to keep away from that sort of yield, especially when your pockets are full of cash, the U.S. Federal Reserve is pumping more in every month and Venezuela is full of expensive oil .
Emerging market central banks have clearly taken to heart the recent IMF warning that there is “an alarmingly high risk” of a deeper global growth slump.
Two central banks have cut interest rates in the past 24 hours: Brazil extended its year-long policy easing campaign with a quarter point cut to bring interest rates to a record low 7.25 percent and the Bank of Korea (BoK) also delivered a 25 basis point cut to 2.75 percent. All eyes now are on Singapore which is expected to ease monetary policy on Friday while Turkey could do so next week and a Polish rate cut is looking a foregone conclusion for November.
LONDON (Reuters) – New funds targeting debt issued by emerging market companies have helped push outstanding issuance past $1 trillion as investors chase high returns while sidestepping problems in developed economies.
Total volumes of debt issued by emerging companies are up tenfold since 2000 and the size of the market now rivals that for U.S. high-yield bonds. Investors are attracted by companies’ strong balance sheets and rising demand for consumer goods and financial services in most emerging economies.
Investors who have been buying up Venezuelan bonds in hopes of an opposition victory in this weekend’s presidential election will be heartened by the results of a poll from Consultores 21 which shows Henrique Capriles having the edge on incumbent Hugo Chavez. The survey shows the pro-market Capriles with 51.8 percent support among likely voters, an increase of 5.6 percentage points since a mid-September poll.
Venezuelan bonds have rallied hard ever since it became evident a few months back that Chavez, a socialist seeking a new six-year term, would face the toughest election battle of his 14-year rule. Year-to-date returns on Venezuelan debt are over 20 percent, or double the gains on the underlying bond index, JP Morgan’s EMBI Global. And the rally has taken yields on Venezuela’s most-traded 2027 dollar bond to around 10.5 percent, a drop of 250 basis points since the start of the year.
For many months now the Russian rouble has been everyone’s favourite currency. Thanks to all the interest it rose 4 percent against the dollar during the July-September quarter. How long can the love affair last?
It is easy to see why the rouble is in favour. The central bank last month raised interest rates to tame inflation and might do so again on Friday. The implied yield on 12-month rouble/dollar forwards is at 6 percent — among the highest in emerging markets. It has also been boosted by cash flowing into Russian local bond market, which is due to be liberalised in coming months. Above all, there is the oil price which usually gets a strong boost from Fed QE. So despite worries about world growth, Brent crude prices are above $110 a barrel. Analysts at Barclays are among those who like the rouble, predicting it to hit 30.5 per dollar by end-2012, up from current levels of 31.12.
LONDON (Reuters) – Investors rushing headlong to emerging markets in search of yield could find future returns under threat as economic downturns and income inequalities spur a rise in political risks.
Emerging markets have been the global success story of the past decade, with booming growth and huge investments eroding old memories of the coups, debt defaults and hyperinflation associated with these countries throughout the 20th century.
LONDON, Sept 27 (Reuters) – Investor appetite for yield has
fuelled record bond issuance by emerging market borrowers, and
the 2012 total is set to top $300 billion helped by some players
pre-financing next year’s needs.
Bond markets are benefiting from two major initiatives
announced over the summer to boost economic growth in Europe and
the United States.