Brazil opened the international debt issue account in 2012 on a high note on January 3 (by selling $750mn of its 2021 dollar-denominated bonds at a yield of 3.449%?150 basis points above comparable US Treasury bonds) and has left the world in a daze with its flurry of debt issuances.

The country?s mining giant Vale raised $1bn on January 4, and the next day Banco Bradesco sold another $750mn in dollar-denominated bonds.

Emerging market debt was one of the last shoes to drop when Europe?s simmering sovereign debt crisis turned into a full-blown panic last year, with the yield of JPMorgan?s benchmark emerging markets debt indices shooting up from 5.46% in early August to a one-year high of 6.39% in October 2011. However, the big freeze is beginning to thaw. The $1.25bn, 30-year bond sold in October 2011 by Pemex, Mexico?s state-owned oil company, was a game-changer. Deals in the last quarter of 2011 included Korea National Oil Corporation, China National Petroleum Corporation and Kuveyt T?rk, a Turkish Islamic bank.

Emerging markets have sold $25.4bn worth of bonds already in 2012, a third higher than the same period last year and a record.

Reliance Communications has secured loans from a host of Chinese banks to refinance the $1.18bn worth of FCCBs due for redemption on March 1.

Imminent bond sales could include Eletrobras (Brazil?s utility), Banco de Bogot?, Union Bank of India, and

Abu Dhabi?s International Petroleum Investment Company. One offer in particular, from government-controlled Banco do Brasil, merits close attention. The largest Latin American

bank by assets came to markets on January 12, 2012, with a bond that may linger around until the end of time (Perpetual Bond).

The bank priced its bond at par and with a yield of 9.25%, according to IFR. Its 9.25% yield is quite a premium for a bank that carries a BB rating from S&P. In fact, it is more than double the 4.5% yield Banco Bradesco got in its offer of $750mn in 5-year bonds on January 5. From the buyer?s point of view, this makes them more like equities as they provide a revenue stream and can be traded on secondary markets, but offer no capital repayment. For the issuer, because it will never be repaid, the

money raised is counted as tier 1, the favoured international measure of a bank?s financial health. This will enable the bank to issue further loans.

The true hidden beauty of this instrument lies in its Basel III ?compliant loss-absorption clause??the first of its kind out

of Latin America and guaranteed to pave the way for other issuers in the region.

On the coattails of rising fund flows from debt issuances, various emerging market currencies have rebounded in 2012. Yet questions arise as to how far debt issuances by emerging market economies will continue to be red-hot and how long their currencies will continue to appreciate.

The rupee, which was the worst performer in Asia last year, is turning out to be the best performer so far in 2012 due to steps taken by RBI. The central bank liberalised the NRE interest rates in December 2011 and allowed banks to set their own interest rates like they did for the savings bank account interest rates. Prior to this, it made no sense to open a NRE account for the interest rate because you got a lot higher rate in the NRO account even after tax deduction. But, with this change, NRIs in western countries can get extremely high rates of tax-free interest in their NRE accounts.

Also assisting the rupee is the fact that demand for dollars could slow after the duty on imports of gold and silver was almost doubled recently.

Despite the explosion of issuance in recent years, emerging markets remain under-leveraged compared to developed markets. The ?original sin? of inflation has not been cured, but has at least been contained relatively well in many emerging markets, encouraging foreign participation. The size of the local currency emerging debt market surpassed the size of the US bond market in 2003?and is now more than three times the size.

The benefits of EMs? liability de-dollarisation is the single most important driver of the continuing improvement of asset-class creditworthiness. I believe the EM ?debt intolerance? premium is disappearing rapidly, knocking down one of the most significant divide between how investors assess risks of EM vis-?-vis DM.

EM currencies have been doing better on days when the euro has been falling, reversing correlations seen for much of last year. This apparent decoupling has prompted speculation that markets may start to see Europe?s problems as isolated, allowing EM currencies to break free. Indeed, the euro has fallen nearly 2 % against the dollar this year, while the Brazilian real, Indian rupee and Chilean peso are all up more than 4%. Eastern European currencies, including the Hungarian forint and the Czech koruna, are the exception, continuing to fall alongside the euro due to their closer links with the eurozone. However, lingering nervousness over the final denouement of Europe?s debt crisis, and concerns that the US and Chinese economies are weakening, might still preclude riskier companies and governments from accessing the market.

China was the only large economy that had the capacity and will to implement policies to counter a new global downturn, but even the world?s second-largest economy?s power to counter recessionary forces would be weaker than in 2008 because the bank lending stimulus created an overheated housing sector while other methods of stimulating growth would be less effective in demand stimulation.

The motor of the global economy?developing nations?is slower at the same time as the world?s largest economic area?the EU?is in recession, and these could feed on each other.

If such a vicious circle were to develop, developing countries would find it impossible to decouple from European woes. Many would be affected by falling oil and commodity prices, remittances sent home from workers in rich countries could fall more than 5% along with income in rich countries, banking systems in poor countries would be vulnerable to financing risk as many developing countries have significant short-term debt falling due in 2012 and a confidence crisis would also hit spending in rich and poor countries alike.

Besides, recent positive data on the US have turned many investors bullish on the dollar. That trend could be derailed if there are any negative surprises in the next few months. In that scenario, the risk of further EM depreciation might not be priced in to the market.

The author is CEO, Global Money Investor