Ethiopian Bond Yields Surge as Conflict in North Escalates

The appeal by the Amhara official risks widening a nine-month conflict in Tigray that has displaced 2 million people and left thousands dead. The violence has exacerbated the impact of the coronavirus pandemic on the economy and tax revenue, and led the government to announce plans to restructure its debt.

Yields on Ethiopia’s dollar bonds due 2024 climbed 20 basis points to 10.25% by 10:35 a.m. in London, the highest since the height of the coronavirus pandemic in May 2020. The premium investors demand to hold the debt rather than U.S. Treasuries widened 25 basis points to 941, the most among Africa sovereign issuers except Zambia, which is in default.

The conflict in Tigray began in November, when Prime Minister Abiy Ahmedordered an incursion in retaliation for an attack on a federal army base by forces loyal to the Tigray People Liberation Front, the region’s dissident ruling party.

Federal troops withdrew from Tigray after Abiy unilaterally declared a truce at the end of June. However, the rebels rejected the cease-fire and have since regained control of the regional capital and moved to retake other towns.

The violence spread in recent weeks into Afar, an area in northeastern Ethiopia that connects the country to the Port of Djibouti. Ethiopia relies on Djibouti’s port and transport-related infrastructure for 95% of its maritime trade, according to the Pretoria based Institute for Security Studies.

Although officials in Afar said trade flows are unimpeded, any blockage of the road south of Afar’s regional capital, Semera, could place a stranglehold on the rest of the country for everything from petroleum to consumer goods.

Calls to Getachew Reda, a TPLF spokesman, didn’t connect when Bloomberg sought comment. Getachew has previously said Tigray is not attempting to gain territory outside its region and is instead trying to “degrade enemy forces.”

The government denounced the rebels for rejecting the cease-fire, which Abiy said would enable farmers to return to their fields and delivery of humanitarian assistance.

“Attacks waged on the National Defense Forces and citizens of any region will be thwarted given the government’s constitutional responsibility to protect the state from any threats,” Abiy’s spokeswoman, Billene Seyoum, said Sunday by text message.

Source: Bloomberg Business News