Emerging markets shrug off Iran war in record foreign borrowing spree

{"text":[[{"start":8.72,"text":"Governments in emerging markets are selling foreign currency bonds at a record pace this year despite rising global interest rates and a revival in the US dollar, as sovereigns shrug off the Iran war or borrow to fund the cost of its impact."}],[{"start":23.52,"text":"A $10bn flurry of emerging-market borrowing this month has brought Saudi Arabia and Qatar back to public dollar bond markets for the first time since the start of the war and lifted total sales of EM sovereign debt to about $200bn so far in 2026. Turkey, Kazakhstan and the Dominican Republic are set to issue dollar and euro bonds this week."}],[{"start":48.26,"text":"Governments issued a record $190bn in the eight months to August, eclipsing the $160bn sold in the same period last year, according to the Institute of International Finance."}],[{"start":60.88,"text":"“The process of EM getting better in the eyes of investors has been going on for a while. It wasn’t a blip in 2025,” said Jonathan Fortun, a senior economist at the IIF. “The asset class of emerging markets is starting to be perceived as much safer than it was.”"}],[{"start":77.4,"text":"Yields on 10-year US Treasuries, a benchmark for dollar borrowing rates around the world, have risen sharply this year to around 5 per cent, threatening to suck cash out of riskier debt markets. Investors are betting that the Federal Reserve will raise interest rates three more times by the middle of next year, according to derivatives markets, after its quarter-point increase this month — the first since 2023."}],[{"start":101,"text":"But the yield premium that EM foreign currency bonds offer over US Treasuries has stayed relatively low, with a benchmark JPMorgan index trading at a spread of about 2.2 percentage points, down from about 2.6 percentage points a year ago."}],[{"start":null,"text":"

"}],[{"start":116.18,"text":"Investors said global economic growth had stayed strong despite high oil prices resulting from the Iran war, bolstering demand for bonds from developing nations that are the most geared to global trade."}],[{"start":127.24,"text":"“The global macro picture is extremely resilient even for countries such as Egypt that have been in the thick of this,” said Yvette Babb, portfolio manager at William Blair Investment Management. “Asset owners have increased allocations to emerging markets, and EM debt managers continued to see inflows even up to last week.”"}],[{"start":145.48,"text":"Of this year’s total issuance, Fortun said, only $72bn will be “new” money — countries raising more money from bondholders rather than refinancing maturing bonds — reflecting rising interest costs as the volume of debt has grown. About a third of the total is set to be issued in euros, up from a quarter in 2024, as countries have switched out of the dollar in search of cheaper interest rates. They have also sought more generally to diversify their currency exposure, resulting, for example, in this year’s record issuance of debt in Chinese renminbi."}],[{"start":182.76,"text":"Qatar sold $3bn of five-year and 10-year bonds this week at yields of 5.3 to 5.5 per cent in its first debt sale since a wartime private placement in April. It followed a big increase in the emirate’s fiscal deficit — which consultancy Oxford Economics reckons will reach the equivalent of 28 per cent of GDP this year — after LNG revenues slowed to a trickle following the near closure in the Iran war of its vital export gateway through the Strait of Hormuz."}],[{"start":212.52,"text":"Qatar’s bond sale has “demonstrated both the depth of liquidity available for well-regarded issuers and investors’ willingness to support new supply from the region despite the geopolitical situation”, said Abdeslam Alaoui, head of capital markets for central and eastern Europe, the Middle East and Africa at Deutsche Bank."}],[{"start":233.12,"text":"Saudi Arabia sold just over $3bn in dollar-denominated sukuk, an Islamic form of debt, earlier this month."}],[{"start":240.66,"text":"Some countries have also raised external debt to rebuild foreign-exchange buffers that have been depleted by the surge in energy import bills this year, particularly in Asia, the region most reliant on traffic through the Strait of Hormuz."}],[{"start":253.92,"text":"This month, Pakistan sold $3bn of five-year and 10-year bonds at yields of 7 to 8 per cent in its largest ever US dollar debt deal, coming after an April private placement. The dollars raised by the sale boosted the country’s international reserves to more than $20bn, bolstering its ability to pay for energy imports and to maintain its recently upgraded credit ratings."}],[{"start":277.64,"text":"Investors said EM sovereign issuance had shown little sign of being crowded out by the surge in AI-related borrowing this year, despite concerns in developed bond markets that hyperscalers are increasingly competing for capital."}],[{"start":290.64,"text":"“While the scale of planned [hyperscaler] borrowing is unprecedented . . . market evidence thus far suggests the risk to EM remains limited,” Bank of America analysts said this month."}],[{"start":307.8,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790237345_1648.mp3"}