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Aramco mega-bond orders eclipse all as emerging markets rally

The supply of developing-nation dollar bonds has increased in the past decade, but the overall market has expanded even faster.
The rand was the leader in the foreign-exchange markets, rising for the fourth time in five days against the lackluster dollar, while the Turkish lira reversed Monday's losses. Picture: Ismail Ferdous, Bloomberg

Saudi Aramco’s six-part debut bond sale is edging toward completion with some eye-popping numbers. The national oil company received more than $100 billion of orders, raising the likelihood it will issue considerably more than the $10 billion originally expected. Final pricing and sale size is likely to come Tuesday afternoon London time.

No indigestion

If there’s any concern that the sheer number of new emerging-market borrowers — not to mention the amounts being sold — is going to leave the market bloated, here’s a factoid unearthed by our London-based editor Srinivasan Sivabalan today that might allay such worries. Though the supply of developing-nation dollar bonds has increased in the past decade, the overall market has expanded even faster, such that sales as a proportion of the benchmark index’s market capitalization have fallen to half of what they were in 2012. Don’t expect any indigestion anytime soon.

Lira recovery

Elsewhere, the prospect of an escalation in the US-European trade war did nothing to derail the emerging-market complex. Most currencies strengthened against a lackluster dollar, the MSCI Index of stocks rose for a ninth day and yield spreads on sovereign dollar bonds were an average of one basis point narrower versus Treasuries. The lira was among the gainers, recovering from yesterday’s 1.1% decline after Turkey’s election board rejected a request by the ruling party for a full recount of votes in Istanbul. The market was additionally comforted by indications that Turkey plans to buy debt from state-owned banks to inject fresh capital into the recession-hit economy. Newton Investment Management is one among the many that remain wary of dabbling in Turkish assets, it said today.

Rand volatility signal

The rand was the leader in the foreign-exchange markets, rising for the fourth time in five days to its strongest level against the dollar since the last day of February. But, as our Cape Town-based editor Robert Brand points out, the currency’s swings are much more telling, and suggest that with the country’s elections less than a month away, traders are looking at the rand as a volatility rather than directional play. One-month implied volatility, based on prices of options covering the May 8 vote, jumped almost 2 percentage points today, the most since the aftermath of the Turkish currency crisis in September, without any commensurate increase in bearish bets as measured by risk reversals. The takeaway? While a strong win for the ruling African National Congress may strengthen President Cyril Ramaphosa’s hand, a below-par performance would make it harder to implement much-needed fiscal and policy reforms.

© 2019 Bloomberg L.P

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