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Morgan Stanley sees developing nations cutting dollar debt sales

Monday, January 19, 2015 - 19:48

[SINGAPORE] Developing nations will cut global debt sales and offer more local-currency bonds this year as the US raises borrowing costs, according to Morgan Stanley.

Gross issuance of foreign-currency notes from emerging markets will drop 25 per cent to US$72 billion in 2015 and domestic-currency sales will rise 2.9 per cent to US$712 billion, the lender forecast in a report released on Monday.

The extra yield investors demand to own developing-country dollar debt over Treasuries widened 124 basis points since the end of June to 393 basis points, a JPMorgan Chase & Co index shows.

"More issuance poses risk to local bonds but the supply could be absorbed by the market," Morgan Stanley strategists including London-based Simon Waever wrote in the note.

"Inflation continues to decline in most emerging-market countries due to lower oil prices."

A Bloomberg index of the 20 most-traded developing-nation currencies fell 14 per cent since the end of June as the US phased out stimulus and a 56 per cent drop in Brent crude pressured oil exporters.

Dollar sovereign notes from developing nations returned 9.2 per cent in 2014, while domestic-currency bonds gained 3.8 per cent.

The Federal Reserve will raise interest rates in the third quarter, according to 61 of 75 analysts in a Bloomberg survey.

Indonesian, Mexico, Turkey and the Philippines have already sold sovereign dollar bonds this year. Sales by Poland, Bulgaria and Brazil are also expected even as total issuance declines, Morgan Stanley said in the report.

BLOOMBERG

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