Latest news with #localcurrency
Zawya
14 hours ago
- Business
- Zawya
US dollar weakness makes EM local debt great again: IFR
Local currency emerging market bonds are delivering huge gains this year thanks to a weakening US dollar and improving fundamentals in developing countries. By the close of June 3, EM local debt had delivered a total return of 9.69% year to date, according to the JP Morgan EM local GBI Index – far surpassing any high-yielding fixed-income asset class, including EM hard currency debt. That compares to a significant underperformance of EM local debt between 2010 and 2024 when average annualised returns were just 1%, according to Neuberger Berman. 'It's an interesting situation,' said Vera Kartseva, portfolio manager and strategist at Neuberger Berman. 'Usually, local currency bonds are seen as the riskiest asset class correlating with equities. But right now, we see an inverse correlation because of the change in the dynamic of the dollar.' In the past three years, the US dollar has appreciated, making it a difficult environment for EM local debt and causing outflows in the asset class. 'But now, we have an overvaluation of the dollar with a catalyst for weakness, emanating from US policy, making it a favourable environment for local EM bonds,' said Kartseva. Performance of EM local debt is often driven by the US dollar, explaining up to 70% of the performance of the asset class, according to Kartseva. 'The overall dollar weakness plays a big role in global portfolios,' she said, adding that Neuberger Berman is 'preferring local to hard EM debt' in its portfolios. Other EM asset managers are also adding to their local debt positions. 'We've been adding to our exposure to EM currencies since the uncertainty on trade and the U-turns from the White House,' said Alexis de Mones, portfolio manager at Ashmore. 'There is a radical change in funding conditions for EM sovereigns and an increasing interest for local currency products.' Strong fundamentals It is not just a weaker US dollar but strong fundamentals in emerging and frontier markets such as lower oil prices, which will help boost growth in these economies. 'While the weaker dollar is certainly helping, we're seeing contributions from bond price appreciation in many countries, as the market begins to factor in lower oil prices and the implications of stronger EMFX on central banks' reaction functions,' said Joseph Cuthbertson, EM sovereign research analyst at PineBridge Investments. Frontier markets are also benefiting from increased demand. The likes of Argentina, Egypt and Nigeria have attracted 'significant inflows' in 2025, according to Raoul Luttik, senior portfolio manager at Neuberger Berman. 'The opportunity set in EM frontier local has increased as fundamentals across several countries have improved, and we're seeing credible reform efforts in Nigeria, as well as disinflation and attractive currency valuations and carry in Egypt,' said Cuthbertson. Meanwhile, Argentina has pushed through deregulation laws and reduced its fiscal deficit. As well as the Egyptian pound and Nigerian naira, PineBridge is keen on the Uzbek som and South African rand 'where we think any upcoming changes to lower the inflation target would be positive for the currency", said Cuthbertson. Uzbekistan particularly stands out 'given reform momentum and improving credit fundamentals', he said. Less correlated Frontier markets are not typically included in benchmarks or ETFs, meaning they are less correlated to global macroeconomic volatility but rather respond to each country's own macroeconomic changes. 'In the frontier space, we look for a combination of a credible path for fiscal and monetary policies, combined with an undervalued exchange rate and attractive carry,' said Cuthbertson. 'We pay close attention to the amount of offshore positioning in each domestic market, looking for underowned markets and opportunities.' The taper tantrum of 2013 – when Treasury yields surged after the Federal Reserve announced it would start to taper quantitative easing – was the last time there was a direct correlation between FX and interest rate volatility in EM, according to de Mones. 'Since then, any selloff in global core bonds, including Treasuries, has not led to a more-than-proportional selloff in EM bonds,' he said. 'Many EM countries have been doing well from a fundamental point of view since the taper tantrum years,' said Luttik, referring to the reduction in external imbalances and tighter monetary policies to bring inflation back to target. 'Attractive valuations and low foreign participation add to the favourable outlook for local bonds,' he said. Can the outperformance of local EM bonds continue? 'It's early days,' said Kartseva. 'Flow-wise we still have year-to-date outflows in the asset class. But we have started seeing inflows in the past couple of weeks [and] this trend has all the ingredients to continue.' The fact the local GBI EM index has become more skewed towards Asia in recent years following the inclusion of India and China, and as the weight of more volatile countries like Brazil, South Africa and Turkey has shrunk, makes the index's 'risk/return profile more stable', said Luttik.
Zawya
29-05-2025
- Business
- Zawya
Global government issuance of US dollar debt tumbling in 2025, data shows
Governments in Asia and Europe are raising far less debt in U.S. dollars than usual, preferring to issue at home as they avoid exposure to rising U.S. yields, currency volatility and broader concerns about U.S. government finances. According to Dealogic data, issuance of dollar bonds by non-U.S. sovereigns dropped 19% to $86.2 billion in the first five months of this year compared with the same period last year, marking the first decline in three years. The January-May dollar bond issuance by the governments of Canada and Saudi Arabia fell 31% and 29% to $10.9 billion and $11.9 billion, respectively, while issuance by Israel and Poland declined 37% and 31% to $4.9 billion and $5.4 billion. At the same time, Dealogic data showed global sovereigns' local currency bond issuance had climbed to a five-year high of $326 billion so far this year. This drop in dollar bond issuance comes at a time when global investors are pulling back from U.S. assets, partly in response to tariffs and as they question U.S. financial dominance and safety. Johnny Chen, portfolio manager at William Blair's emerging markets debt team, said the rise in local currency issuance is largely driven by falling domestic interest rates as inflationary pressures ebb, noting that India, Indonesia and Thailand have all cut their benchmark interest rates this year. "In India's case, the local currency debt market has also matured further with the inclusion of Indian local currency debt in global bond indices. This development has likely expanded the investor base, prompting more local currency issuance in 2025," he said. Brazil is considering issuing its first sovereign bonds in yuan, two government sources said, after President Luiz Inacio Lula da Silva's visit to Beijing concluded with a wave of Chinese investment announcements and a currency swap agreement. Brazil's sovereign U.S. dollar bond issuance has dropped 44% to $2.4 billion this year, data showed. Saudi Arabia raised 2.25 billion euros ($2.36 billion) through a euro-denominated bond sale, including its first tranche of so-called green bonds, as part of its global medium-term note program, aligning with its strategy to diversify away from dollar-linked financing. "The challenge with the onshore local currency is that those issuances tend to be much smaller, they're less liquid," said Kenneth Orchard, head of international fixed income at T. Rowe Price, based in London. "But we think over time there are going to be more international investors in those markets." (Reporting By Patturaja Murugaboopathy in Bengaluru and Jiaxing Li in Hong Kong; Additional reporting by Gaurav Dogra in Bengaluru; Editing by Hugh Lawson)
Reuters
29-05-2025
- Business
- Reuters
Global government issuance of US dollar debt tumbling in 2025, data shows
May 29 (Reuters) - Governments in Asia and Europe are raising far less debt in U.S. dollars than usual, preferring to issue at home as they avoid exposure to rising U.S. yields, currency volatility and broader concerns about U.S. government finances. According to Dealogic data, issuance of dollar bonds by non-U.S. sovereigns dropped 19% to $86.2 billion in the first five months of this year compared with the same period last year, marking the first decline in three years. The January-May dollar bond issuance by the governments of Canada and Saudi Arabia fell 31% and 29% to $10.9 billion and $11.9 billion, respectively, while issuance by Israel and Poland declined 37% and 31% to $4.9 billion and $5.4 billion. At the same time, Dealogic data showed global sovereigns' local currency bond issuance had climbed to a five-year high of $326 billion so far this year. This drop in dollar bond issuance comes at a time when global investors are pulling back from U.S. assets, partly in response to tariffs and as they question U.S. financial dominance and safety. Johnny Chen, portfolio manager at William Blair's emerging markets debt team, said the rise in local currency issuance is largely driven by falling domestic interest rates as inflationary pressures ebb, noting that India, Indonesia and Thailand have all cut their benchmark interest rates this year. "In India's case, the local currency debt market has also matured further with the inclusion of Indian local currency debt in global bond indices. This development has likely expanded the investor base, prompting more local currency issuance in 2025," he said. Brazil is considering issuing its first sovereign bonds in yuan, two government sources said, after President Luiz Inacio Lula da Silva's visit to Beijing concluded with a wave of Chinese investment announcements and a currency swap agreement. Brazil's sovereign U.S. dollar bond issuance has dropped 44% to $2.4 billion this year, data showed. Saudi Arabia raised 2.25 billion euros ($2.36 billion) through a euro-denominated bond sale, including its first tranche of so-called green bonds, as part of its global medium-term note program, aligning with its strategy to diversify away from dollar-linked financing. "The challenge with the onshore local currency is that those issuances tend to be much smaller, they're less liquid," said Kenneth Orchard, head of international fixed income at T. Rowe Price, based in London. "But we think over time there are going to be more international investors in those markets."
Zawya
20-05-2025
- Business
- Zawya
Doha to ‘intensify' development of local currency debt: GCMA
Doha may 'intensify' the development of its local-currency debt market, which is currently going through an 'exciting' phase in view of the robust macroeconomic fundamentals and sovereign support, according to the Gulf Capital Market Association (GCMA). The local capital market regulator (Qatar Financial Markets Authority or QFMA) is committed to the sustainable sector and has increased the clarity around the issuance and listing of debt, Michael Grifferty, President, GCMA said in the Qatar Financial Centre's latest Islamic Finance report. The local currency market has begun to gain traction as it saw its first issuance by a publicly listed company in 2024, he highlighted. Estithmar Holding had last year issued a QR500mn sukuk, marking the first corporate issuance denominated in Qatari riyal, under its QR3.4bn programme. The three-year sukuk, maturing in September 2027, offers an 8.75% coupon and drew interest from government and non-government investors, including banks, insurers, asset managers and family offices. 'There is a possibility that Qatar may intensify the development of its nascent state local-currency programme,' Grifferty said. Terming Qatar's debt capital market as an 'exciting' work in progress, he said 'we have already seen an increase in the diversity of issuers and structures, many in sukuk format and increasingly for sustainable uses.' The state led in this regard by issuing a green bond in a benchmark size, and was the first regional sovereign to do so. In 2024, Qatar set a regional benchmark by issuing $2.5bn in green bonds to fund environment friendly projects, marking a new era for sustainable finance. The bonds are divided into two tranches: a $1bn tranche with a five-year maturity priced at 30 basis points spread over the US treasuries and a $1.5bn tranche with a 10-year maturity priced at 40 basis point spread over US treasuries. 'Banks have added labelled ESG (environment, social and governance) bonds and sukuk to their active issuance programmes,' Grifferty said. The Qatar Central Bank (QCB) is certainly behind this trend, having published its ESG and Sustainability Strategy for the Financial Sector in 2024, he said. 'This is having results, as almost 20% of the debt capital market is being issued for ESG purposes,' he said, quoting an international credit rating agency Fitch. Qatar's domestic markets have been buoyed by a robust economy underpinned by supportive public spending and the authorities' commitment to invest in economic transformation. 'Adding in a well-capitalised banking system and regulatory developments, the case for the Qatar market has only strengthened,' he said. Regulators for their part are laying the foundation for more active debt and equity markets with further market liberalisation, including by easing listing requirements and providing greater clarity about the path to issuance of both debt and equity instruments, according to him. Rounding out the ecosystem are the recent establishment of a ventures exchange, and the completion of a groundwork for listed derivatives to allow trading of futures and options, he said, adding 'we have also begun to see some activity in securities borrowing and lending (SBL). © Gulf Times Newspaper 2022 Provided by SyndiGate Media Inc. (
Zawya
13-05-2025
- Business
- Zawya
S&P expects 7 emirates, UAE govt to issue $18bln local currency debt in 2025
The seven individual emirates and the UAE federal government are expected to issue about $18 billion (AED 66.11 billion) of local currency debt in 2025, down from $19 billion in 2024, according to Zahabia Gupta, Director and Lead Analyst for Middle East and Central Asia, S&P. Abu Dhabi and the UAE federal government are forecast to issue more than $8 billion of local currency debt this year to help develop a domestic yield curve, she added. About 55% of the debt will be used for refinancing or to roll over maturing debt, Gupta said. Among the three emirates rated by S&P - Abu Dhabi, Ras Al Khaimah and Sharjah - only Sharjah is expected to issue debt to cover a budget deficit estimated at 6.3% of GDP in 2025. The others are likely to maintain budget surpluses. However, the country's domestic debt capital market is still developing, particularly the local currency issuance segment. Since the federal government began raising debt in 2021, it has issued AED 27 billion of treasury bonds and sukuk in local currency, equating to about 42% of total issuances. Gupta said that more regular domestic currency issuances by Abu Dhabi and the UAE federal government will help to build a domestic yield curve. This will help pricing by banks and corporates, help smaller issuers access the capital markets and diversify the funding base. 'That said, we expect bank funding, along with access to international capital markets, to remain the core funding sources for corporates in the near term,' Gupta noted.
