Africa’s sovereign bond rally continues unabated

Africa’s sovereign bond rally continues unabated, with prices reaching nearly two-year highs in countries like Ethiopia, Ghana, and Rwanda, Bloomberg reported on Tuesday.

Consequently, the average risk premium for African debt compared to US Treasuries has hit its lowest point since April 2022.

Initially fueled by funding from multilateral lenders and signs of debt restructuring progress, the appetite for African sovereign Eurobonds, all rated as junk, persists. With the growing certainty of a forthcoming US interest rate reduction, investors are eyeing riskier markets for higher returns.

Moreover, market anticipation of the end of rate hikes and potential cuts, according to Franck Bekaert, a senior analyst at Gimme Credit, is driving interest in high-yield debt like African bonds, which still offer attractive premiums compared to developed debt.

Recent developments, such as Egypt securing an $8 billion loan programme with the IMF and an additional $3 billion from the World Bank (WB), have further boosted market sentiment. Additionally, Kenya‘s $1.5 billion Eurobond issuance earlier this year alleviated pressure on the nation and eased market stress.

While reduced risk premiums could theoretically prompt more African nations to issue debt, there’s no rush due to persistently low net issuance in high-yield markets, as noted by Thys Louw, a portfolio manager at Ninety One Plc.