EM bonds: time to sell?

На сайте FT.beyondbrics опубликована подборка мнений аналитиков, которые считают, что на рынках облигаций ЕМ надувается пузырь…

You have to feel for some investors. Barely have they found somewhere to put their money when the cry of “bubble” goes up.

But with the hot inflows into emerging markets bonds driving yields to a record low and valuation models getting thrown out of whack, that’s exactly what some EM specialists are suggesting.

“It has the feel of an asset bubble,” said Raymond Chan, Asia-Pacific chief investment officer for RCM, a unit of Allianz Global Investors.

“Every day, I see three to six new [EM] bond issues,” he told beyondbrics. “And they are all getting massively oversubscribed. People are not looking at price or the underlying company, they are buying indiscriminately.”

Chan is not the only one who feels this way.

Brigitte Posch, who helps manage about $92bn in EM corporate bonds at Pimco, said she was prepared to cut back on her EM corporate debt holdings for much of the same reasons outlined by Chan.

“Investors didn’t have enough time to understand the credit, decisions are taken very quickly and those companies may have problems in refinancing or repaying debts if the market shuts,” she told Bloomberg.

Record inflows into EM hard currency bonds have pushed yields on all investment grade segments of the market to all-time lows, as the chart below from Bank of America Merrill Lynch shows.

What is revealing in the chart though is that while the high yield market as a whole is not at its historical lows, it is only the bonds rated single-B and lower (the bottom of the high-yield bond barrel so to speak) where yields have not yet reached their lows. EM BBs, which represent roughly half of the entire EM high yield credit market, are actually trading at their lowest yields in history, suggesting that investors are increasingly willing to go down the credit curve in order to pick up incremental yield.

For issuers – these conditions have made it, as BoA put it, the “best time to issue in history”.

But the intensity and willingness of investors to pour into EM debt are starting to give fund managers and credit analysts pause.

Bolivia, for example, attracted a staggering $4.5bn in orders for its $500m 10-year issue last month. The country, which has long been lumped by investors with Venezuela and Ecuador as among South America’s riskier bets because of its long history of appropriating assets, had not issued a bond in over 90 years.

So for the bond to be nine times oversubscribed is staggering, especially considering that the paper, rated BB, or two notches below investment grade, yield only 4.875 per cent.