Stellar conditions await emerging market borrowers in 2021

Published: January 23, 2021

The coronavirus pandemic sparked an unprecedented monetary response from major central banks, and credit market participants think that this could lead to a bumper year for emerging market bond issuance in 2021. 

The US Federal Reserve and European Central Bank had the same idea when the coronavirus pandemic started in March 2020 when they pumped the system full of liquidity. This meant the Fed announcing that it would buy an unlimited amount of US Treasuries. By the middle of May, the Fed owned US$7 trillion of bonds.

This sent rates plunging. The yield on the 10-year US Treasury, used to benchmark countless emerging market dollar bonds, fell from 1.877% on January 2 2020 to as low as 0.508% in the middle of the summer. It has since risen to 0.94% in December. 

The ECB did something similar to the German Bund, though years of ECB quantitative easing had already pushed the yield on 10-year German government debt well into negative territory. The 10-year Bund was trading at minus 0.22% on January 2, and minus 0.597% on December 9.

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