Waning trust in US Treasuries drives record demand for EM bonds

EM debt is getting cheaper: Strong demand for emerging market (EM) debt has pushed borrowing costs for highly-rated issuers to their lowest levels relative to developed markets since 2007, the Financial Times reported yesterday. Faith in traditional safe havens has faded over the year, due to the Trump administration’s erratic trade policies, the salmon colored paper said.

By the numbers: Government bond spreads over US Treasuries have dropped to 1.04 percentage points, their lowest level since 2007, while corporate debt spreads have narrowed to 1.1 points, below pre-Trump’s election levels.

The push factors: The shift is being fueled by Trump’s political pressure on the Federal Reserve and mounting concerns over the high levels of US government debt. “The safe assets aren’t as safe as they used to be,” the Bank of America’s head of global EM fixed-income strategy David Hauner told the paper.

The pull factors: Other than the attractive yields, the appeal of EM is underpinned by a growing appreciation for the improving economic health and credit quality. The market is being supported by increased bond issuance from stable, highly-rated Gulf states and economic reforms in other developing nations like Argentina and Pakistan. EM bonds have also been “under-owned” for many years, suggesting there is still substantial capacity for future investment and growth, Hauner said.

Macro winds are blowing in the EM’s favor: A high appetite for risk, spurred by “superstrong” global equities, is leading investors to overlook trade war concerns and focus on positive fundamentals like a weaker USD and Chinese growth, the FT cites unnamed Citi analysts as saying.

BUT- The current optimism for EM leaves little room for error, posing big risks if the global economy slows or if US inflation rises, JP Morgan’s head of EM fixed-income strategy Jonny Goulden told the FT.

ALSO FROM PLANET FINANCE-

• Asset managers are launching active ETFs at a record pace, to capitalize on growing investor interest in products that aim to outperform traditional passive index trackers. During 1H 2025 alone, 476 active ETFs debuted across the US and Europe, marking twice the 234 new passive funds launched over the same period. (Financial Times)

MARKETS THIS MORNING-

Asian markets are in the green this morning, with Japan’s Nikkei up 1.9% and Hong Kong’s Hang Seng up 0.4%. Wall Street futures are virtually unchanged following big tech earnings releases from Alphabet and Tesla.

THE CLOSING BELL: TADAWUL-

The TASI rose 1.3% yesterday on turnover of SAR 5.3 bn. The index is down 8.7% YTD.

In the green: Sport Clubs (+18.6%), MESC (+7.6%) and Teco (+5.9%).

In the red: Sico Saudi Reit (-5.1%), Obeikan Glass (-3.2%) and Azm (-3.2%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.1% yesterday on turnover of SAR 27.2 mn. The index is down 14.9% YTD.

In the green: Alashghal Almoysra (+8.5%), NAF (+8.4%) and SMC (+7.2%).

In the red: First Avenue (-6.6%), Tam Development (-5.6%) and Alwaha Reit (-5.6%).

CORPORATE ACTIONS-

Arab National Bank’s board approved a SAR 1.3 bn dividend payout for 1H 2025 at SAR 0.65 per share, it said in a disclosure to Tadawul. The distribution date is set for 6 August.

PaperHome Company’s general assemble approved increasing its capital by 200% to SAR 60 mn via issuing two bonus shares for each, it said in a Tadawul disclosure yesterday.

Abo Moati for Bookstores Company’s Board approved distributing SAR 10 mn in cash dividends for 1H 2025 at SAR 0.5 per share, according to a disclosure to Tadawul. The distribution date is set for 15 September.

National Building and Marketing Company raised the capital of its subsidiary Ajeej Steel Manufacturing Company by SAR 120 mn to SAR 300 mn, according to a disclosure to Tadawul.