In H1-18, several Sub-Saharan African (SSA) countries opted for a larger budget deficit as public debt levels surged. Spurred by record-low spreads in the international debt capital market, earlier in the year, some of the region’s key economies (Ivory Coast, Ghana, Angola, South Africa, Nigeria, Kenya, and Senegal) turned to the Eurobond market, issuing a total of c. $15.2bn during the period.
However, while the primary market issuances in the region were largely oversubscribed, given their high coupons, the secondary market performance in H1-18 saw a bearish outing as the yield on 12 of 14 instruments issued during the half trended higher amid emerging market (EMs) sell-offs. The bearish the sentiment was triggered by concerns over a strengthening US dollar and rising Treasury rates even as trade tensions worsened between the U.S and China.
The surge in external debt growth, currently at record levels have led to the IMF’s latest warning on the rising risk of a distress. Looking ahead, with an outlook for a tighter monetary condition in the advanced economies, yields on sovereign Eurobonds in SSA are likely to stay bearish in H2-18.