Emerging Market Junk Debt Issuance Surges To New Record As The "Search For Yield" Intensifies

The reason for the scramble into any piece of yielding debt, even Tajik junk bonds is simple: as the IMF shows today in its latest financial stability report, there are virtually no IG bonds left with yields above 4%, and in the junk bonds space, whether in the US or offshore, it isn't much better.

Meanwhile, as the head of EM asset allocation at UBS Wealth Management, Michael Bollinger, pointed out to the FT, holding the 7.125% Tajik bonds until maturity can be a great yield for a pension fund with a 7% return target...that is, until the bonds can't be refinanced at maturity.

Michael Bollinger, head of EM asset allocation at UBS Wealth Management, said that relatively high-risk, high-yield sovereigns were attractive to institutional investors and private clients to hold to maturity.


“The problem with liquidity is that when you need it most, it is least available, and that problem can be particularly pronounced in these rare issuer names,” he said.


Will the flurry of issuance continue? Mr Bollinger expects it to ease off. “Some of these guys will start to find it more difficult — at this point in the cycle it is time to become more selective in EM bonds,” he said.


Meanwhile, Mr Rediker warns that sovereigns with poor credit ratings could struggle to refinance their debt when it matures.


“What if the rollover risk is greater than investors and issuers think it is?” he said. “That is a premise that not everybody seems to be taking as seriously as they might.”

Of course, with garbage bonds (it's a technical term) in Illinois yielding 3.74% (see: Muni Investors Celebrate "Juicy" 3.74% Yield On New Illinois Bonds As State Hurdles Toward Bankruptcy), it's not all that difficult to understand why bond investors see relative value in Tajikistan.

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