African countries that issued Eurobonds during recent boom years are facing worse pain than other emerging-markets amid a plunge in prices for most commodities exported from the region and the US interest rate hike.
According to a Bloomberg report, sub-Saharan Africa accounts for 10 of the 20 worst performing dollar denominated bonds from emerging and frontier markets in 2016.
The report said African securities have shed 5.4 percent so far this year, compared with the average 1.3 percent loss in emerging markets, the worst start of a year since 2010.
“You’re seeing particularly violent moves in African bonds because you have an investor base retrenching from frontier markets, and the underlying fundamentals of these countries are suffering,” Ray Zucaro, chief investment officer at RVX Asset Management, told Bloomberg.
Lured by low borrowing rates, many African countries, which had their debts written off merely a decade ago, rushed to the international debt market to raise funds for their infrastructure boom through sovereign bonds or Eurobonds.
African sovereign bonds, although still a tiny blip on the radar of global fixed income markets, have grown hugely since the financial crisis in 2008-09.
Debt issuance from the region nearly doubled to $11 billion in 2014, compared to the $6 billion governments raised from the global market in 2012.
Yields across Africa have surged since late last year to reach an average of 9.4 percent, compared with 5.8 percent in April last year, according to the Bloomberg USD Emerging Market Sovereign Bond Index.
While it has become much more expensive for African governments to issue debt, rising yields have made securities from the region more alluring to investors.
Typically, emerging and frontier markets have always offered much greater returns on their debt than developed markets.
Analysts told Bloomberg that risk aversion over the state of the global economy and how it will affect sub-Saharan Africa will however keep investors at bay and most likely push yields on African Eurobonds a tad higher.