Global fixed-income desks and sovereign borrowers have seen a dramatic shift in market conditions since late February, leaving a once-frothy pipeline of emerging-market debt issuance effectively on hold. The spate of transactions that propelled first-quarter issuance to record levels has slowed sharply as concerns tied to the Iran conflict push investors to demand higher compensation for risk and to reduce exposure to many emerging assets.
Issuance in January and February was so strong that, even with the near-cessation of deals in March, first-quarter supply still reached unprecedented heights for the region. According to industry participants, sovereigns and corporates across central and eastern Europe, the Middle East and Africa - grouped as CEEMEA - had sold an exceptional volume of debt in the first three months of the year.
Bankers describe the current state as a near-freeze. "All funding discussions are continuing but with a cautious wait-and-see mode," said Victor Mourad, Citi's CEEMEA co-head of debt financing. He added that while large, creditworthy borrowers retain theoretical access to markets, that access comes at a premium.
Market data cited by bankers and dealmakers show emerging-government and corporate borrowers in CEEMEA raised a record $117.5 billion in the first quarter, narrowly exceeding the comparable period last year, even before Angola's recent transaction. The spike in crude prices since the outbreak of hostilities in the Gulf has helped certain oil producers find receptive buyers, with Angola singled out as a notable exception to the broader pullback.
Angola's credit spreads have compressed since hostilities involving the U.S. and Israel began on February 28, a sign that investor appetite for that particular oil-linked sovereign has increased. In contrast, other countries have seen their borrowing costs rise. Credit spreads for nations such as Egypt and Turkey widened as investors reassessed potential economic strains from the conflict, including exposure to higher energy and food prices. Even major oil exporters have not been immune; spreads for Saudi Arabia also moved wider in the same period.
Flow dynamics underscore the change in mood. Investors withdrew $3.3 billion from emerging-market debt in the week to March 19, while more than $5 billion exited high-yield corporate bonds, a level of outflow that deal-makers compared to past episodes of sudden market anxiety. Bank of America characterized the high-yield corporate outflow as the largest since an earlier tariff shock, indicating a meaningful reappraisal of risk in credit markets.
Quantitatively, the JPMorgan EMBI spread - a measure comparing emerging-market dollar debt to U.S. Treasuries - widened by 17 basis points to 268 basis points since late February. Country-level moves amplified that trend: Egypt's spread rose by 44 basis points and Turkey's by 36 basis points, while Angola's spread narrowed by 39 basis points to 504 basis points in the same window.
The market reaction is grounded in the unpredictability of the conflict and its direct and indirect effects. Disruption to regional energy infrastructure and interruptions to critical shipping routes, notably the closure of the Strait of Hormuz, have elevated commodity-price and logistical risks. Those developments have encouraged investors to avoid taking large directional positions across many asset classes, prompting some banks to reduce their overweight positions in emerging markets.
"The only major shift we have done since the start of the war is increase commodities and reduce our overweight on emerging assets," said Manish Kabra, multi-asset strategist at Societe Generale.
Deal bankers see a bifurcated market. A tranche of high-quality sovereign names, particularly Gulf governments, are being actively picked over in secondary markets by buyers seeking higher-rated exposure. That secondary-market demand could provide the basis for a rapid return of primary issuance if the conflict calms and risk premia compress. "We do get some reverse inquiries from investors, particularly around higher-rated names - mainly the governments," said Stefan Weiler, JPMorgan's head of CEEMEA debt capital markets.
At the same time, persistent uncertainty could push borrowers toward alternatives to public bond markets. When public markets become stressed, borrowers and their advisers often explore private or structured funding options - from private placements to more complex transactions - which can offer tailored terms but typically come at a cost. "Private deals typically become more interesting or palatable for borrowers when in moments of market distress," Weiler observed.
There are early signs that selective issuance can still clear. Aside from Angola's sovereign deal, Africa-focused corporate Helios Towers also completed a debt placement this week, an example of how issuer quality, sector exposure and commodity links can make the difference between access and exclusion in the current climate.
Bankers emphasize that while primary activity has slowed, the secondary market has not uniformly repriced to levels that preclude future issuance. Mourad noted that some investors are buying current secondary valuations, implying that wider spreads today may offer attractive entry points for patient buyers. For issuers, that dynamic translates into a choice between waiting for improved market conditions or accepting higher issuance costs if they need to tap fixed-income investors now.
For now, most funding conversations continue in a tentative mode. Market participants say access to financing still exists for some borrowers, but the price and structure of that access have shifted materially. The path back to robust primary issuance will depend on how quickly the conflict's market effects subside and whether secondary-market demand sustains interest in higher-quality emerging sovereigns.
Summary
- Emerging-market debt issuance that was at record levels earlier in the year has largely paused as the Iran conflict heightens market volatility and borrowing costs.
- Some oil-linked issuers like Angola, and select corporates such as Helios Towers, have still completed deals, while many borrowers face a funding limbo.
- Investor outflows and wider credit spreads for several countries underscore heightened caution; secondary-market demand for higher-rated Gulf sovereigns may provide a channel for a later rebound.