2022 sovereign gross issuance to fall to US$178bn: We estimate sovereign gross hard currency bond issuance to fall to US$178bn in 2022 from US$182bn in 2021 for the countries/regions covered in Exhibit 1, a drop of US$4bn. For these sovereigns, it would mean net issuance falls by US$10bn to stand at US$103bn, the lowest since 2015, given that maturities increase further. Once including interest as well, net payments stand at US$48bn.

The fall in gross issuance in 2022 versus 2021 comes mainly from LatAm IG, with MENA only down in net terms: In LatAm, most IG sovereigns should see less issuance despite remaining high versus history, with Chile, Mexico and Peru all expected to issue around US$5bn less versus 2021. In MENA, while gross issuance does increase by US$4bn, this is largely due to the high maturities, with net supply instead down by US$8bn, which is more in line with higher oil prices.

At a sovereign level, only four issuers are expected to issue more than US$10bn, namely Indonesia, Romania, Turkey and Chile.

Despite upward adjustments, budget oil price assumptions remain cautious: Higher oil prices were a key driver behind lower-than-expected issuance in 2021.

For 2022, the average price assumption of just US$57/bbl remains far below our commodity strategists' oil price expectations for 2022, suggesting that room for revenue outperformance remains. In turn, this should result in net issuance for EM oil exporters continuing to fall into 2022.

2022 to see more HY issuance, still high long duration issuance and even more ESG issuance: We expect HY issuance to be up by US$5bn to US$63bn while IG issuance falls by US$7bn to US$115bn for a HY share of 35% versus 33% in 2021.

2021 saw US$67bn of long-end bonds (+15y) for a 37% share, with 2022 likely to see just as high a number. EM sovereign ESG-labelled issuance more than tripled in 2021 to stand at US$33bn, or 18% of the total issuance. The largest growth came from social and sustainable bonds, with green bonds up slightly. This trend is set to continue, with new ESG issuers likely in 2022.

Lower local issuance versus 2021: EM ex China should see lower bond issuance on aggregate given that most economies continue to consolidate fiscal deficits post-pandemic, although levels remain wide versus the historical trend. The risk to local bond supply is balanced: government revenue could surprise on the upside thanks to growth while expenditure could increase if the Covid situation deteriorates. China should see more bond issuance to support growth.