EM succumbs to sub-zero epidemic as debt pile doubles in a week

  • Business
  • Tuesday, 16 Jul 2019

LONDON: A sinkhole of negative-yielding debt in emerging markets has doubled in size over the past week. This time last year it was non-existent.

The amount outstanding soared to $246 billion, driven mostly by the growing pile of corporate debt with sub-zero rates, which almost tripled in seven days, according to data compiled by Bloomberg.

Corporate heavyweights such as China Everbright Bank Co. and Petroleo Brasileiro SA, and sovereigns including Poland and Hungary have seen their rates drop below zero after a dovish turn at Federal Reserve and the European Central Bank sparked a mad dash for yield. 

Emerging-market bonds handed investors 3.5% over the past two months, more than a percentage point above returns on U.S. Treasuries, according to Bloomberg Barclays indexes.

The amount of negative-yielding corporate bonds almost tripled to $109 billion from a week ago.

Sovereign bonds with sub-zero rates climbed about 50% to $136 billion.

"This is a global phenomenon, not an EM phenomenon,” said Warren Hyland, who manages emerging-market debt at Muzinich & Co. in London. 

"Ultimately if less and less of bonds generate a positive yield, that means more and more people are looking for a positive-yielding bond and EM has more of that than elsewhere.”

Developing-nation debt attracted inflows for a fifth straight week through July 10, according to Bank of America Merrill Lynch, which cited EPFR Global data. - Bloomberg 
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