Eurobond market sales reach $34 billion
As rising US Treasury yields disrupt global markets, emerging-market bond issuers are finding it increasingly difficult to attract investors, particularly those with weaker credit ratings, according to a report from Bloomberg.
Despite a strong start to 2025, concerns about inflationary pressures and higher borrowing costs are dampening optimism for lower-rated sovereign and corporate debt.
The year began with a rush of activity in the eurobond market, with sales reaching approximately $34 billion, a 12% increase over the same period in 2024.
However, a significant portion of this issuance has been from investment-grade borrowers, including Saudi Arabia, Mexico, and Slovenia. Lithuania is also preparing to join this group, issuing bonds in euros. The exception was Benin, which successfully raised $500 million despite its lower rating.
According to Bloomberg, this preference for higher-rated debt is not limited to sovereigns. Sales from junk-rated issuers have totaled around $6 billion so far this year, reflecting a 7% decline compared to 2024. This marks the slowest start to the year for high-risk borrowers since 2020. Bahrain’s Arab Banking Corp., for example, canceled its bond offering after investors found the yield insufficient.
Market anxiety is driven by the anticipated economic policies of the new US administration. Mohammed Elmi, senior portfolio manager at Federated Hermes, noted that emerging markets are adjusting to a "no-landing hypothesis"—a scenario in which a strong US economy drives up interest rates and keeps inflation persistent.
With President Donald Trump's focus on tariff hikes and immigration reforms, some fear that Treasury yields may rise further, putting additional pressure on borrowing costs for emerging markets.
“With an ‘America First’ policy mix to come from the new administration, it could exacerbate the rate selloff and raise emerging market borrowing costs even further,” said Elmi.
The average yield on emerging-market dollar bonds has climbed by more than 40 basis points in the last five weeks, reaching approximately 6.84%, according to Bloomberg data.
The situation is even more dire for single-B-rated issuers, whose yields have surged by 54 basis points. As US dollar strength and Treasury rate movements continue to weigh on markets, high-yield borrowers face tough choices: offer higher premiums to attract investors, seek funding from international organizations like the IMF, or wait for more favorable conditions.
Some are turning to alternative sources of financing. Angola, for example, used bonds as collateral in exchange for a $1 billion loan from JPMorgan Securities. Pakistan, too, is exploring yuan-denominated bonds, diversifying away from traditional US dollar debt.
Despite these challenges, some investors remain hopeful. As US Treasury yields stabilize, they anticipate a rebound in emerging-market bond sales, especially once the initial uncertainty surrounding the new US administration settles.
Will emerging-market borrowers find relief as US policies unfold, or will rising Treasury yields continue to stifle access to capital? Share your thoughts in the comments.
