Monday, 9 March 2009

Emerging Market Debt Trading Volumes Plunged 33 Percent in Fourth Quarter. Corporate Debt Trading Amost Halved

The Emerging Markets Traders Association (EMTA) published last week its volume survey for the full year. In the fourth quarter, volume totalled $823 billion -- or about $13 billion a day. This number contrasts with $19 billion a day in the same quarter of 2007. Behind this drop, no surprises, the credit crisis seems to be the main culprit. But other aspects should be taken into account: new sales and offerings almost came to a halt: new issuance tumbled to $2.27 billion, from $13.7 billion in the previous quarter. And the third quarter had already been a very weak one. Brazilian sovereign bonds were the most actively traded asset class among emerging market paper with $32 billion changing hands over in the quarter -- bringing the annual total to $193 billion. The Brazil 2040 bond was the single-most actively traded security in the market with a volume of $80 billion for the year, or 41 percent of full sovereign activity for the credit.

Corporates suffered tremendously.
Trading of corporate debt dropped 34.4 percent from the previous quarter. The year-on-year decline was 64.3 percent. Full-year corporate trading totalled $391 billion, compared with $663 billion in 2007.

New sales of corporate debt enjoyed a quick revival at the start of this quarter, with sales by Pemex, Petrobras (which are quasi-sovereign debt but, well, they also are within the corporate bond class) and banks in South Korea. On the contrary, sovereign activity has been quite good (Indonesia, Brazil and Colombia were among the countries that issued new debt this year.) Digicel, the wireless operator that covers part of Central America and the Caribbean, had to trim its offering by $150 million to a total $300 million, with the book expected to close tomorrow and at very disadvantageous terms (please check the posting we moved on Friday night.) The Cemex bond might be put off -- the company may fail in its attempts to refinance billions of dollars of debt (about $4 billion to $6 billion) coming due this year. Activity in this asset class will pick up, if so, slowly, say analysts such as Ann Milne of Deutsche Bank and David Spegel of ING Bank. Risk taking though has shown some signs of improving; but in the short term, more companies will be forced to rework their offerings to better reflect the market moment. Those with the means will pay much more in interest than they did five or six years ago. About $60 billion of corporate bonds and loans have to be refinanced this year in the year (I think the number comes from ING Bank.) About $27 billion have to be refinanced by Brazilian companies alone.

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