African Sovereign Eurobond August 2015 Review: Yield widening due to falling commodity prices

Lagos, Nigeria, Capital Markets in Africa — A remarkable feature in Fixed Income markets this year has been the widening in African sovereign Eurobond yields. This weakening is in part due to the expected rise in US bond yields and fallen commodity prices (as most African countries are commodities dependent) as well as the anticipated decline in global growth due to China economic downturn. 

Since January 2015 yields on Zambia’s 2022 and Zambia’s 2024 Eurobond have increased by 264 basis points (bps) and 296 bps respectively, reflecting a swelling budget deficit, volatile currency and decline in the price of copper (Zambia’s major export commodity). The recently issued Zambia’s 2027 Eurobond sold in July at 8.97 percent yield and traded at 10.002 percent at the end of August, with yield widening of 76bps from the issue date. 

In the same period, Mozambique’s 2020, Gabon’s 2024, Nigeria’s 2027 and Angola’s 2019 bonds have risen by 184bps, 129bps, 92bps and 77bps respectively.  However, the yield narrowed for Namibia’s 2021 and Tunisia’s 2027 by 9bps and 1.1bps in that order. 

For South Africa, the most developed capital markets in Africa, the South African sovereign Eurobond maturing in 2024, 2025, 2041 and 2044 ended with a yield of 4.55%, 4.80%, 5.46% and 5.54% with increased in the year-to-date (from January 2015 to end of August 2015) yield of 45bps, 49bps, 51bs and 58bps respectively. 

In terms of creditworthiness, among African countries with Eurobonds, only debt from Morocco, South Africa and Namibia are rated “investment grade”, which according to Standard & Poor’s and Fitch ratings is BBB- and higher, BB+ and below is regarded as “speculative grade” or “junk”. Out of the other African countries rated Ghana, Egypt and Ivory Coast are rated B (B-) by Fitch Ratings (Standard & Poor’s) six steps below investment grade. Nigeria is rated three levels higher at BB- (B+) by Fitch Ratings (Standard & Poor’s), whereas Standard & Poor’s rated Zambia and Kenya at B+.

See the table below for more on selected African sovereign Eurobonds as at 31st August 2015.