Emerging Market Sovereign Hard-Currency Debt Issuance Hits Record as Iran Conflict Fails to Halt Borrowing Boom
nashnova research
Emerging-market sovereign foreign-bond issuance has topped $200 billion in 2026, a record — even as the Iran war grinds on and U.S. Treasury yields sit near 5%. Governments are borrowing to cover war-driven fiscal gaps and surging energy-import bills.
How did $200 billion pile up?
IIF data: issuance reached $190 billion in the first eight months, already above last year's $160 billion pace.
Since September, Saudi Arabia and Qatar returned to the public dollar-bond market after months away, adding roughly $10 billion in a single month and pushing the year's total to about $200 billion.
Turkey, Kazakhstan, and the Dominican Republic plan dollar and euro issues this week — the issuance window is still widening, not closing.
A war is on — why are investors still buying?
The JPMorgan benchmark spread — the extra yield EM foreign-currency bonds pay over U.S. Treasuries — has narrowed to about 2.2 percentage points, down from roughly 2.6 a year ago. This means → investors are actively compressing the "risk premium," signaling rising confidence, not retreat.
IIF senior economist Jonathan Fortun: "This asset class is being viewed as a much safer investment than it was in the past."
William Blair portfolio manager Yvette Babb says even war-hit Egypt faces a "remarkably resilient" macro backdrop; asset owners have raised EM allocations, and inflows continued through last week.
Qatar and Pakistan each set records — what is the money for?
Qatar sold $3 billion in five- and ten-year bonds at 5.3%–5.5%, its first public offering since wartime private placements. In plain terms = the near-closure of the Strait of Hormuz has crushed LNG exports; Oxford Economics estimates Qatar's fiscal deficit will hit 28% of GDP this year — the bonds plug a revenue cliff.
Pakistan completed its largest-ever dollar issue: $3 billion, at 7%–8%. The proceeds lift international reserves above $20 billion, covering energy imports and supporting a recently upgraded credit rating.
Saudi Arabia issued over $3 billion in dollar-denominated sukuk — Islamic-law-compliant bond structures — earlier this month.
Of all that borrowing, how much is genuinely "new money"?
Fortun notes only about $72 billion of this year's total is net new borrowing — the amount above and beyond refinancing maturing debt. This means → most issuance is "borrow new to repay old," and rising interest costs are eating into the space for fresh funding.
Roughly one-third of issuance is now in euros, up from one-quarter in 2024. Borrowers are chasing lower rates and diversifying currency exposure.
Renminbi-denominated issuance also hit a record this year. This reflects a systematic effort by EM borrowers to reduce dependence on a single dollar-funding channel.
Can the borrowing boom last?
Bank of America analysts said this month that despite fears hyperscaler AI-related borrowing could crowd out demand, "market evidence to date suggests the risk to emerging markets remains limited."
In plain terms = the real question is not whether investors are willing to buy, but whether EM sovereign spreads can hold at current levels under the twin pressures of high rates and geopolitical risk.
If spreads widen again, borrowing costs rise fast — and with refinancing already dominating issuance, the fiscal cushion for governments is thinner than headlines suggest.
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