Bankers and investors report that the record-breaking start to the year for emerging market bond issuance has largely stalled. Concerns over the Iran war have disrupted markets and driven up borrowing costs, leaving many countries in a difficult position.
This near-freeze in activity highlights the precarious situation of many emerging economies. Just one month ago, bonds from these economies were in high demand, seemingly unaffected by tariff disputes and other geopolitical turmoil.
A notable exception this month was oil producer Angola, which successfully completed a financing round, supported by surging oil prices.
Victor Mourad, Co-Head of Debt Financing for Central and Eastern Europe, Middle East, and Africa at Citigroup, told Reuters, "All financing discussions are continuing, but all parties are adopting a cautious, wait-and-see approach."
He stated, "Issuers still have access to financing, especially large, high-quality issuers can raise debt if necessary, but the cost of financing will correspondingly increase."
**Awaiting Improved Market Conditions**
Stefan Weiler, Head of Debt Capital Markets for Central and Eastern Europe, Middle East, and Africa at J.P. Morgan, noted that emerging market nations, led by Saudi Arabia, Mexico, and Turkey, had an extremely strong issuance pace in January and February. Even with sparse activity in March, first-quarter issuance volume still set a record.
Prior to Angola's market entry this week, sovereign and corporate borrowers from the Central and Eastern Europe, Middle East, and Africa region had raised an unprecedented $117.5 billion, nearly $3 billion more than in the first quarter of 2025.
Mourad mentioned that since the US and Israel initiated military action against Iran on February 28, Angola has been one of the few emerging sovereigns to see its credit spreads narrow. This indicates that investors are now demanding a lower risk premium to lend to this West African oil producer compared to pre-war levels.
Helios Towers, a company focused on African markets, also completed a bond issuance this week.
The situation is far more challenging for other countries: Data from Bank of America shows that in the week ending March 19, investors withdrew $3.3 billion from emerging market bonds and over $5 billion from high-yield corporate bonds, marking the largest outflow for the latter since the US tariff shocks of April 2025.
Due to the war's potential economic impact, credit spreads have widened significantly for countries like Egypt and Turkey, and even for major oil producer Saudi Arabia. Egypt and Turkey are also highly vulnerable to rising energy and food prices.
Since late February, the spread between J.P. Morgan's emerging market US dollar bond index and US Treasuries has widened by 17 basis points to 268 basis points. Egypt's spread widened by 44 basis points, and Turkey's by 36 basis points. In contrast, Angola's spread narrowed by 39 basis points to 504 basis points.
The unpredictable nature of the conflict—featuring unprecedented attacks on energy infrastructure in Gulf states and the blockade of the critical Strait of Hormuz—has made investors hesitant to take significant positions in most assets.
Several banks have explicitly reduced their overweight positions in emerging market assets.
Manish Kabra, Multi-Asset Strategist at Société Générale, said, "Our only significant adjustment since the war began has been to increase exposure to commodities and reduce exposure to emerging market assets."
Weiler believes that if a few transactions from the pipeline of pending deals are successfully completed, it could trigger a "concentrated wave of backlogged deals."
However, if uncertainty persists, the appeal of other financing channels may increase, such as complex deals involving borrowing directly from lenders via total return swaps or private placements.
Weiler stated, "During periods of market stress, private financing typically becomes more attractive and more accessible for issuers."
**Strong Demand Waiting in the Wings**
Meanwhile, both Weiler and Mourad indicated that investors are buying high-rated Gulf sovereign bonds in the secondary market, suggesting demand could rebound if the conflict de-escalates.
Speaking about bonds from Gulf countries like Saudi Arabia, Weiler said, "We are indeed receiving reverse inquiries from some investors, particularly for high-rated entities, primarily governments."
Mourad noted that the secondary bond market's reaction to the turmoil has been relatively muted.
He said, "Investors buying bonds in the secondary market at current valuation levels is a signal that market interest remains." He added, "For some investors, this current spread widening represents a good entry point."
Comments