Apr 12, 2022 - Economy

Market for Eastern European debt appears to be thawing

Eastern Europe corporate bond issuance
Data: dealogic; Chart: Will Chase/Axios

In one of the many knock-on effects the war in Ukraine has had on global markets, corporate bond issuance in Eastern Europe all but came to a halt for a time after Russia's invasion.

The big picture: A broad selloff in emerging market bonds sent yields higher, making it more expensive and difficult for companies that need to raise capital.

  • A prolonged period of outflows from emerging market mutual funds and ETFs drove the selling pressure on EM bonds, especially those from Eastern Europe, says Sergey Goncharov, emerging markets portfolio manager at Vontobel’s Fixed Income Boutique.
  • Year to date, EM debt funds as a whole experienced an average weekly net outflow of $201 million, according to Lipper FMI. That compares to a $77 million average weekly inflow during the full year of 2021.

But, but, but: It’s not just war-contagion fears driving yields higher in the region, says Christine Phillpotts, emerging markets portfolio manager at AllianceBernstein.

  • The rapid move upward in U.S. Treasuries — a global benchmark — has also sent yields on bonds around the world zooming higher, she notes.

What to watch: The market for Eastern European debt appears to be thawing — at least for better quality companies.

  • “I think there’s starting to be a differentiation,” between stronger companies and those that are more vulnerable, Phillpotts says.
  • The last few weeks have delivered some "green shoots," Goncharov adds.

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