Corporates and sovereigns from the developing world are on track to sell bonds in excess of $60 billion in the first quarter of 2010 as global economy recovers from its deepest recession since the Second World War.

Figures compiled by ING show both companies and governments in the developing world already having sold nearly $55 billion in bonds this year.

Nearly double last year's depressed levels, this remains some way off 2007's record first quarter when corporate and sovereign borrowers in emerging markets issued over $63 billion.

'Although there have admittedly been a few intermittent weeks of pause during the recent uncertainties over Greece, the primary market for emerging-market bonds have improved dramatically over first quarters of 2009 and 2008,' said David Spegel, global head of emerging markets strategy at ING.

'Investors' tolerance for liquidity and credit risk has improved markedly,' ING's Spegel said, noting that 37 percent of the first quarter's corporate new issues were rated below investment grade.   

If issuance volumes included resurgent local-currency bond sales, emerging-market borrowers would have raised $102 billion in the year-to-date, Thomson Reuters data shows.   

'The return on emerging sovereign dollar debt is not fantastic but in terms of risk return it's one of the best. The quality of risk is one of the best out there,' said Pierre Yves-Bareau, head of emerging debt at JPMorgan Asset Management.   

The benchmark sovereign emerging bond index EMBI Plus shows spreads to US Treasuries at 257 basis points -- the lowest since May 2008 but still more than 100 bps over the May 2007 record low around 150 bps.

Emerging market issuance totalled $200 billion last year and that number should at least be equalled this year as borrowers rush to lock in favourable prices generated by low yields on US Treasuries.

'Generally you get a lot of issuance at the beginning of the year as sovereigns try and get their financing needs for the year ahead,' said Stuart Culverhouse, head of research at Exotix.   

'At the moment we have a favourable market backdrop.
Borrowers who want to lock in favourable rates will do so now but has we come to the end of the quarter, the rally might run out of steam,' he added.

As of now there are no signs of that. Romania, Israel and Turkey sold Eurobonds last week while a raft of Russian quasi-sovereign bonds came to the markets.

Book sizes testified to the strength of the demand, with Israel receiving orders worth 13 billion euros and Romania books around 5 billion euros.   

One notable feature of emerging market issuance this year has been growing supply from private sector borrowers. JPMorgan estimates that firms accounted half of the emerging-market issuance in the year-to-date, issuing some $23 billion.

The investment bank expects emerging corporate issuers to sell some $128 billion in bonds this year, with companies in Latin America taking the lead with a 42-percent share. Because banks are more cautious in the wake of the financial crisis, companies are turning to the bond markets to meet their financing needs.

'The syndicated loan market has largely closed down as banks' appetite for loans is not what it was,' said Brett Diment, head of emerging debt at Aberdeen Asset Management, adding that he has upped portfolio allocations to emerging corporate debt in recent months. - Reuters