The debt capital markets across CEEMEA have enjoyed what was a phenomenal year for volumes. Although the White House could complicate the macroeconomic picture in 2025 as it toys with inflationary policies, market participants are confident for a sustained trajectory in primary market activity.

Since the start of the year, USD 287.6bn has been issued across CEEMEA, marking a notable year-on-year increase, according to Dealogic data. Historically tight spreads, minimal to no new issue premiums and a whole host of debut issuers have supercharged the market.

“It has been a very positive year across CEEMEA, following a more volatile period in 2022 and 2023 that was driven by central bank action and consecutive rate hikes,” according to Abdesalam Alaoui, managing director, head of CEEMEA capital markets at Deutsche Bank. “The cutting cycle this year caused the market to rally and has increased positive sentiment among investors.”

Though the market expected a rebound, activity surpassed expectations, according to Khaled Darwish, head of CEEMEA debt capital markets at HSBC, who noted that around 90% of deals in CEEMEA this year priced with zero new issue premiums.

“Liquidity was strong, driven by a switch into GCC and EM risk from multiple pockets of liquidity, including crossover investment grade money and Asian liquidity for higher rated names,” Darwish continued.

Issuers diversified their currency mix. Montenegro dabbled in US dollars for the first time, while Saudi Arabian sovereign wealth fund the Public Investment Fund (PIF) debuted in the sterling market and the Emirate of Sharjah priced its first euro deal. The Republic of Poland continued to flex its muscle in different funding pockets, issuing in US dollars, euros and Japanese yen.

Iman Abdel Khalek, head of CEEMEA debt capital markets at Citi, says currency diversification will continue, especially for the more prolific issuers. “As long as funding costs in different markets are comparable to US dollars there will always be a desire to diversify. It might not be material, but we will definitely see issuers tapping different markets in 2025, including the euro, sterling and Asian markets.”

The Gulf has been at the fore of eye-catching deals this year, with Middle East issuers shrugging off the ongoing geopolitical volatility on their doorstep amid conflict between the State of Israel and Hamas and Lebanon-based Hezbollah.

The State of Qatar issued a USD 2.5bn dual-tranche green bond — the first sovereign green bond in the GCC (Gulf Cooperation Council) — and in the process achieved one of the lowest ever spreads on an issuance recorded in CEEMEA.

Elsewhere, the Kingdom of Saudi Arabia drew enormous attention, having been the largest borrower, not just in CEEMEA but across global emerging markets this year, driven by the need to fund a number of ambitious giga-projects tied to its Vision 2030.

According to Dealogic, a total of USD 54bn was raised by Saudi issuers this year, with quasi-sovereign names such as Saudi Aramco boosting the number of jumbo deals.

That will likely continue in the new year, enabled by the sovereign’s relatively low debt-to-GDP ratio and the vast amount of infrastructure-related financing that needs to be raised, a trend that will only grow with the country now set to host the World Cup in 2034.

That fundraising has not just been concentrated at the sovereign level — banks have also been roped into the mammoth task, which Radu Gheorghiu, emerging markets global financials analyst at Global Evolution, says will persist.

According to Gheorghiu, as projects ramp up, the demand for funding is likely to exceed the growth in local Saudi banking sector deposits, therefore necessitating further wholesale funding in the primary markets from these banks.

The performance of lower-rated credits was the standout development across sovereign and corporates alike in 2024, according to Franck Nowak, director of research, emerging markets corporate credit at Franklin Templeton.

“There were positive developments at the sovereign level, following 2023 in a year when there were questions around debt sustainability. There is still a lot to be addressed, but there are positive signs. Policy credibility is important in 2025 — sovereigns will need to position themselves with credible frameworks that allow them to face higher inflation levels and/or slower growth dynamics,” said Nowak.

The Republic of Turkiye produced a constant stream of supply this year as investor sentiment continued to pick-up amid a turnaround in the country’s approach to inflation and monetary policy. According to Dealogic, a whopping USD 29.4bn has been raised this year, beating 2023’s USD 16.3bn and 2022’s USD 11.9bn.

That near USD 30bn total included five deals from the sovereign, all the top-tier banks and a number of large private corporations, such as Zorlu Enerji Elektrik Uretim.

Outlook constructive

Looking ahead to the next 12 months, market participants are buoyant, with Deutsche Bank’s Alaoui anticipating volumes to be slightly higher than 2024, in part due to a potential drop in oil prices bringing more sovereigns from MENA to the market.

One of the regional sovereigns absent from the market this calendar year was the Arab Republic of Egypt, which is considering Eurobond sales worth around USD 3bn this financial year.

Much of the cheap coronavirus-era financing was priced with five-year tenors meaning there are swathes of debt to be refinanced. Abdel Khalek at Citi says the large maturity walls in 2025 and 2026 will be a key driver of activity. There are also hopes that M&A could get a boost, driving more market activity towards the back-end of the year.

With hopes that rates will continue to come down, issuers could also seek to extend their tenors.

According to Franklin Templeton’s Nowak, the macroeconomic picture will drive performance going into 2025 and 2026. “There is less spread compression potential across the region, albeit we focus on select, idiosyncratic opportunities for excess return,” he said. The best performers, Nowak argues, are likely to be in the high yield segments, with investors having to show more selectivity.

White House headwinds

The consensus view among market participants polled by Debtwire is that the US Federal Reserve is likely to conduct between 75bps and 100bps of rate cuts in 2025, having started the monetary easing cycle in September with a 50bps cut — its first in four years. But all estimates come with a caveat.

President-elect Donald Trump’s victory in November brought with it a shadow of unease. Trump’s rhetoric around proposed tariffs on imports may lead to a more inflationary environment, potentially delaying or interrupting the monetary cutting cycle.

“The incoming Trump administration has increased uncertainty, which may be not fully priced in as of now — policies are likely to be on the growth destructive and inflationary sides and there are questions around which countries will be targeted, where the fine prints matter,” said Franklin Templeton’s Nowak.

Deutsche Bank’s Alaoui said that issuers looking to enter the US dollar market will try to front-load their issuance, given the potential for a pause in cuts or even a hike later in the year, depending on how inflationary Trump’s policies are. January, therefore will be extremely busy across the region.

However, the overall sentiment is still optimistic, with primary issuance expected to continue on a healthy trajectory, even amid potential rate volatility. HSBC’s Darwish anticipates overall volumes to resemble those of 2024.

Banks and corporates in need of funding, and who can pass on that cost, may be willing to pay an insurance premium in exchange for the certainty of funds, and to have a capital structure in order ahead of what is likely to be a volatile and uncertain economic cycle, Nowak said.

High hopes for Africa though rates concerns linger

However, should rates remain elevated for a prolonged period, some of the more high yielding sovereigns in sub-Saharan Africa may be discouraged from tapping the bond market with large deals, HSBC’s Darwish added.

That could be an impediment to the health of sub-Saharan Africa’s debt capital markets, which in 2024 exhibited an improvement relative to previous years. A handful of sovereigns raised USD 11.7bn in Eurobond issuances this year, marking a 174% year-on-year increase and signalling a cautious return of investor appetite for African sovereign debt. That cohort included the likes of the Republic of Côte d’Ivoire, the Republic of Benin, the Federal Republic of Nigeria, the Republic of Kenya, and the Republic of South Africa.

These issuances were met with strong demand, such as South Africa’s USD 3.5bn dual-trancher that was two and a half times oversubscribed. Such deal flow could well continue in 2025, despite the possibility of rates staying higher for longer. However, issuers need to be at ease with the current interest rate environment, said Ed Hoyle, head of syndicate at Standard Bank

“Overall, I expect volumes will continue to recover, especially for Africa. Demand for EM this year has been unwavering, so it’s a question of issuers being comfortable with pricing,” according to Hoyle.

Victor Germeshuizen, head of hard currency debt capital markets at Absa, also struck a cautiously optimistic tone about sovereign deal flow going into 2025. US Treasury yields have edged up slightly as a result of recent macroeconomic data and US election results, but Germeshuizen expects sovereign Eurobond volumes to come in at “healthy” levels next year.

“We expect next year’s sovereign activity levels to be similar to 2024’s. Several sovereigns have signalled the intention to issue more in the medium term,” Germeshuizen said. “Benchmark rates have risen above the low levels reached in September, but we expect investors’ risk appetite to remain at healthy levels and issuers to gain support for well-timed transactions. We may see further spread compression for some names as growth outlooks and macroeconomic fortunes improve next year.”

Indeed, as January approaches, many African sovereigns such as the Republic of Namibia are working on strategies to refinance their Eurobonds amid a shifting economic landscape.

Corps enrich CEE supply

While sovereign issuance in the Central and Eastern Europe (CEE) region satisfied expectations, an abundance of corporate supply was pleasantly welcomed.

Nowak noted that corporate issuances across the CEE and the former Commonwealth of Independent States (CIS) regions exceeded expectations. “This made sense from an issuer standpoint — companies wanted to get ahead of potential election-related disruptions in the US, and although base rates were quite high, spreads across emerging markets were low.”

Romgaz and Telekom Srbija served as particularly “noteworthy debuts”, according to Ruslan Gadeev, senior financial analyst, fixed income research & ESG research at Raiffeisen Bank International.

The market is closely watching the FIG sector in CEE in the coming months. Banks will continue to look to market opportunities as existing senior preferred (SP) and senior non-preferred (SNP) instruments edge closer to their first call dates and banks lose their Minimum Requirement for Eligible Liabilities (MREL), Global Evolution’s Gheorghiu noted.

However, the choice of replacement instruments may be dictated by possible M&A activity, Gheorghiu continued. “The lack thereof will likely see continued supply in the SP and SNP space. Although, given that spread levels are almost at record [lows] at the moment, when combined with a possible further reduction in rates, we may see some banks look to test out Additional Tier 1 and Tier 2 markets.”

Sialiu Bankas, a Lithuania-based financial institution, placed the first AT1 bond issued out of the Lithuanian market in October.

Nevertheless, the majority of issuance is likely to reflect the regulatory environment, according to Gheorghiu.

Sovereign issuance has been steady in the region, with the Government of Romania placing several sets of Eurobonds in 2024, including a triple-tranche JPY 30bn (around EUR 200m) samurai bond with proceeds to be allocated in line with its Green Sovereign Bond Framework.

“Across CEE, we are seeing more interest in ESG structures and niche currency transactions, such as Swiss franc and Japanese yen,” said Alaoui at Deutsche Bank.

Within the former CIS, both the Republic of Uzbekistan and the Republic of Kazakhstan came to market with Eurobond deals this year. The former priced a triple tranche bond, despite a crowded primary market at the time, while also developing its Euroclearable local currency curve.

Sukuk market faces potential ‘derailment’

The sukuk product had a phenomenal year in its historical stronghold in the MENAT region, while investors also enjoyed new entrants from beyond the region. Dublin-headquartered AerCap priced its debut sukuk, a USD 500m 4.5% October 2029 offering, in September, following its transatlantic peer Air Lease Corporation (ALC), which flew into the Shariah-compliant market in March last year.

The pipeline in 2025 is already expected to be hefty following a healthy 2024, in which there was USD 44.2bn raised in the Gulf alone, marking a year-on-year increase of around 31%, according to Dealogic.

There will be at least three-to-four debut issues from United Arab Emirates-based issuers in 2025, the majority of which will be in sukuk format, according to Darwish at HSBC. Notably, some sovereigns in the Gulf want to build their US dollar sukuk curves, with the expectation that these governments will also look at the Shariah-compliant market in the year ahead.

Now, market participants say, the market can expect to see more supply from issuers in geographies with nascent Islamic financial markets. According to HSBC’s Darwish, “there are guaranteed to be new entrants to the sukuk market from outside of the region – the list is limited, but there are names in specific sectors, such as air leasing, construction, and real estate.” Issuers across Latin America, Africa and the former CIS region are demonstrating interest, he continued.

Deutsche Bank’s Alaoui concurred regarding interest from Latin as well as North America. “There is a huge appetite among GCC investors, including those who want to diversify into global markets where they can potentially get higher yields.”

However, issuance could be stymied by one major factor. The potential introduction of AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) Shariah Standard No. 62. It would, in essence, alter the credit profile of the sukuk from an asset-based structure to an asset-backed one, requiring the transfer of ownership of underlying assets to the investor, who would have recourse to the assets.

Its proponents argue that the standard’s adoption would bring the sukuk market in closer alignment with fundamental Shariah principles around profit-loss sharing, while other market participants argue it would completely transform the sukuk universe, turning the fixed income instrument into one more similar to a securitised or equity-like product.

Depending on when the proposal is adopted, and to what extent, which still remains unclear, primary issuance could be dented as the market adjusts.

“If AAOIFI Standard 62 is implemented as proposed, it will derail the market. The costs of doing a secured deal would be far greater than the savings an issuer would make by issuing a sukuk. Introducing different classes of securities into the market could have many implications from transaction costs to covenants and it just wouldn’t be practical,” noted Abdel Khalek at Citi.