From Value Walk

The bond market in the United States, whether sovereign or corporate, isn’t worth getting into. Yields have collapsed under pressure of quantitative easing, and fixed income investors are left searching around the world for high yield. High yield means high risk, but in Africa high risk doesn’t necessarily mean high reward.

A Reuters report on the burgeoning African bond market highlights some of the issues on the continent. Yields on debt maturing in 2017 issued by Gabon, a country few have heard of, and fewer still know anything about, have been cut in have in the last eighteen months to 3.3 percent. This, as Tim McLaughlin at Reuters points out, is just a 248 bps spread on five year Treasury Bills.

When money flows into a bond market, yields fall. Gabon is not the kind of country that should be able to offer bonds that yield just 3.3 percent. The country is just three years out from under the kleptocratic regime of Omar Bongo, and though it seems stable right now, that yield does not effectively present the risks inherent in the country’s debt. The country is currently led by Bongo’s son, Ali Bongo.

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