By Claire Milhench
LONDON (Reuters) - Corporate and emerging market bond sales fell in the third quarter due to rising borrowing costs and trade tensions, while volatility crimped fund managers' emerging debt appetite.
Debt issuance from companies has been falling all year as the U.S. steadily raises rates, while a turbulent summer effectively closed the market for emerging sovereigns such as Turkey and Russia - a marked contrast to 2017's bumper issuance.
Hard currency bond sales from developed market corporates amounted to $572.8 billion in the third quarter according to Thomson Reuters data, down from $676.2 billion in the second quarter and $712.1 billion in the first.
Volumes were also down almost 11 percent on third quarter 2017, despite notable deals such as U.S. telecoms operator AT&T's, $3.75 billion senior floating-rate issue.
Third-quarter investment grade bond sales totalled $490.8 billion, data from the Institute of International Finance (IIF) showed, outpacing Q3 2017's $482.2 billion.
Meanwhile junk bond sales fell to $62.8 billion from $81.7 billion in the second quarter and versus $105.4 billion in Q3 2017, the IIF data showed, despite a $1.2 billion deal to help finance KKR's leveraged buyout of Envision Healthcare.
Emerging market debt sales totalled $12 billion, according to Thomson Reuters data, compared with $53.2 billion in the second quarter and down 72 percent year-on-year, although Middle Eastern and Asian issuers were quite active.
Ranko Milic, head of CEEMEA debt capital markets at UBS, said that some emerging economies had specific problems: "The market has been completely closed for Russian and Turkish names and those are two pretty big markets for CEEMEA."
A sell-off in Turkey's lira and Argentina's peso triggered emerging market contagion in August, prompting bond spreads to blow out to a two-year high and clobbering emerging debt fund performance.
"There has clearly been a correction in spreads but not to levels where the market would completely close down," Maarten-Jan Bakkum, a senior strategist at NN Investment Partners, said.
A debut $500 million 10-year bond from frontier market issuer Papua New Guinea last month was six-times oversubscribed, even though it was viewed as a tough sell in a more cautious market.
Other notable issues included $2 billion in sukuk from Saudi Arabia and a 154.2 billion yen Philippines Samurai bond - an Asian record.
In a sign asset managers wanted to stock up on high-quality names to ride out the turmoil, there was also strong demand for a $1 billion South Korean bond.
Issuance by emerging market corporates was $17 billion, down from $27.4 billion in the second quarter and less than half the $39.1 billion in third quarter 2017, according to Thomson Reuters data.
Sales came mainly from Middle Eastern and Asian banks, real estate companies and utilities, such as Saudi Electricity. South African chemicals and energy company Sasol also raised $2.25 billion.
(Reporting by Claire Milhench; Editing by Alexander Smith)