Recent low issue prices of bonds from new, frontier credits have surprised many long-standing fixed-income bankers and investors, who are pondering why demand has been so strong despite the obvious risks associated with some of these transactions. Some are now asking: if fundamentals do not reflect the risk-reward relationship, is the once-marginal bookbuilding issue of technical, index-driven demand perhaps responsible for some of the over-subscription? And, if so, could investor behaviour be about to lead to even greater technical-demand issues as investors look away from traditional market-capitalization-based indices towards other, less liquid, bond indices?
“Did you read the list of disclaimers in the Bolivia prospectus?” asks one senior Latin America DCM banker.
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