Emerging-market countries racing to raise funds to finance budget deficits may have to pay higher borrowing costs because of global risk aversion, according to Brown Brothers Harriman & Co. in New York, Bloomberg reported.
Export earnings for sub-developing nations have slumped due to slower external demand and falling commodity prices, while the credit crunch has curbed foreign-direct investment, both vital sources of currency earnings, Brown Brothers said.
"Borrowing costs for emerging debt have fallen in recent months but remain at elevated levels," Win Thin, a senior foreign-exchange strategist, wrote in a report yesterday. "Those borrowers that are forced to issue near the beginning of the year are likely to have to pay relatively more given the still high spreads on emerging-market debt demanded by investors."
The JPMorgan Emerging Markets Global Bond Index, or EMBI, yielded 6.70 percentage points more than U.S. Treasuries yesterday, down from October's 8.91 percentage points, which was the widest in six years. The spread averaged about 3 percentage points in the five years prior to the collapse of Lehman Brothers Holdings Inc. in September.
"We look for the EMBI Global spread to normalize later this year to around 500 basis points," Thin wrote.
