In January the Republic of Argentina launched a $2 billion 20-year global bond. It was almost four times oversubscribed, priced below the indicated spread range and still tightened 40 basis points in the first two days' trading. The Argentina/Mexico spread differential at 20 years fell from 120bp to 75bp.
As the issue was launched, bookrunner Merrill Lynch's head of fixed income Jim Quigley enthused: "We saw accounts in this that we have never seen in an emerging market instrument before. There were high-quality European pension funds, sophisticated financial institutions which usually buy only triple-A and double-A securities." Other syndicate members confirm that many accounts who normally balk at paper over seven years piled enthusiastically into the issue.
They needn't have panicked. There is plenty more high-yield sovereign paper coming to market. Uzbekistan plans a debut Eurobond; Brazil is to launch its longest-dated deal yet at 20 years; Lebanese issuers are queuing up and entitities from Croatia, Lithuania and Romania ;even Polish municipalities are keen to sup at the trough of global liquidity.
This may be great news for underwriters, but it's bad news for the market. When neophyte buyers dip their toes in the 20-year end of the Argentine curve it is clear that a bubble is not only forming, it's close to bursting.