Can They Pay? Ballooning EM Yields Pose a $413 Billion Question

LAGOS (Capital Markets in Africa) – Emerging-market sovereign bonds tumbled as the prospect of billions of dollars in stimulus packages threatened to flood the market with new debt, and in some cases undermine already fragile finances.
The extra yield developing nations need to pay to borrow dollars from abroad has doubled since the start of the year to 629 basis points — the highest since the global financial crisis. The prospect of a wave of debt sales around the globe has widened the spread further in recent days, even as the rate on U.S. Treasuries climbed.
Emerging markets have $413 billion of sovereign and corporate hard-currency debt coming due this year against a brutal financial landscape. The spread of the coronavirus is forcing governments to all but shut down their economies, crushing demand for exported goods and commodities. That and the fact that investors and companies are pouring into the perceived safety of the dollar has sent developing-nation currencies into a nosedive.
“Their economies are more focused on exports — industrial goods or commodities, and that’s exactly what people stop buying when you’re in the kind of situation we’re in now,” said Nicolas Dubus, Paris-based global bond-fund manager at Groupama Asset Management. “The leverage in those countries is also pretty high, so without cash flows, how can they pay back their debts?”
The ruble and the Mexican peso were the biggest decliners on Wednesday amid fears about the impact of plunging energy prices. Bond yields have surged above 10% in several countries, from Ukraine and Oman to Sri Lanka and Angola levels often seen as prohibitive for accessing new foreign funding.
The pile of hard-currency debt for repayment will rise to $422 billion and $501 billion in the next two years, according to data compiled by Bloomberg. The losses from dollar-denominated emerging market debt have hit almost 10% so far this month, the worst-performing bonds globally after European and U.S. junk-rated corporate debt, according to Bloomberg Barclays indexes.

Source: Bloomberg Business News