Trillion-Dollar Emerging Market Bond Payment

At the end of June, the debt pile for emerging-market governments and businesses totaled $57 trillion, or about 30% of the global total, according to the International Monetary Fund.

Emerging markets, chiefly in China, are on the hook for about $1 trillion worth of bond redemptions per year from 2018 through 2020 as heavy post-financial-crisis borrowing catches up with debtors, and climbing U.S. interest rates will make refinancing expensive.

In the next three years, $3.23 trillion worth of bonds in emerging markets will mature, according to Dealogic, with corporate bonds comprising about 90% and sovereign debts around 10%. The total will hit a record $891.9 billion this year and grow to $1.1 trillion in 2019 and $1.2 trillion in 2020. The roughly $1 trillion annual rate is nearly double the tally from three years ago.

Chinese businesses and government entities face about $1.75 trillion — roughly 54% of the total — of bonds maturing through 2020.

Brazil has $136 billion of bonds coming due over the three-year period, while Russia owes $133 billion and Mexico $88.1 billion.

When bonds mature, issuers generally borrow afresh to cover the debt. But emerging markets tend to have relatively shallow pools of domestic investors, leaving issuers unable to raise what they need unless they float dollar-denominated debts as well to raise funds from overseas.

Rate hikes in the U.S. drive yields on American bonds higher. Since 1994, investors chasing those yields have tended to shift money into the U.S. market whenever benchmark rates rise. That phenomenon helped trigger the Asian currency crisis of the late 1990s through falling stock prices and softening currencies in emerging markets.

Such markets have since fortified themselves against capital outflow with deeper reserves of foreign currency, and expectations for a repeat of that crisis are low. Including developed countries, global foreign currency reserves are at $11.6 trillion, 40% above 2010 levels. China’s foreign reserves have grown 10% to $3.11 trillion, while Mexico’s have jumped 70% to $178 billion. Southeast Asia has been expanding its stockpiles as well, with Indonesia’s rising 60% to $119.8 billion.

Reference

Nikkei Asian Review, Mio Tomita, 2018-08-07, “China and Emerging Markets Face Trillion-Dollar Bond Payments”