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LONDON. –  Emerging and frontier market countries have borrowed a record amount of money in capital markets in the first half of this year, even as central bankers warn that “debt market euphoria” could be storing up trouble for the future.
International sovereign bond sales by emerging markets reached $69,47 billion in the first six months of the year, a jump of 54 percent on the same period in 2013.
The increase makes 2014 a record year for emerging market government debt issuance so far, according to data from Thomson Reuters. The figures do not include Chinese government debt, which is not issued in international markets.

“Countries are being sensible and refinancing shorter-term debts at a time when rates are low,” says Bhanu Baweja, emerging market strategist at UBS.
“But the quality of issuance is deteriorating and that is something to worry about.”

Years of ultra-low interest rates and unconventional monetary policy around the world following the financial crisis have helped push down global bond yields, luring investors into riskier areas of the debt market and providing ample incentives for countries to raise money.

In April, Greece attracted orders of €20 billion for its first bond issuance since the country’s indebtedness triggered a crisis that threatened the eurozone. Cyprus returned to debt markets just a year after a banking collapse that left the island in need of a €10 billion bailout.

In mid-June, Kenya set a record for the largest sovereign bond debut by an African country with a $2 billion issue that was four times oversubscribed, while Ecuador – frozen

out of international capital markets since defaulting on its debt in 2008 – successfully sold $2 billion of new debt.
Some fear, however, that when developed world interest rates start to rise, there will be a repeat of last year’s “taper tantrum”, when talk of winding down unconventional monetary policy led to a retreat from emerging market assets.

Last month the Bank for International Settlements, the bank for central banks, warned of the dangers posed by rising debt burdens around the world. For some countries, it noted, the room for manoeuvre had narrowed as rates stayed low.

Total debt issuance by emerging market countries remains small compared to that of developed economies, which totalled $157,6 billion in the first six months of the year.

Any rise should be put into the perspective of the global credit market, argued Jonathan Goulden, emerging markets strategist at JPMorgan.
“Debt issuance by emerging market sovereigns is running ahead of pace, but this year-on-year growth is something you’d expect to see as more countries develop and enter capital markets,” he said. – Agencies.