Love of yield beats supply fears as Africa plans bond deluge

The dollar-bond market remains unruffled by what could become a torrent of new-bond sales from African governments: the yields are far too attractive to worry about excess supply for now.

A measure of African sovereign dollar-bond yields eyed the biggest two-day drop in a month even as governments from South Africa to Ghana were testing the water for potential bond sales. Still, the gauge hovered above its 10-year average, acting as a lure for yield-chasing investors, given the little room for monetary tightening in the US, Europe or Japan.

A “reluctant rally” that’s seen Africa outperform emerging-market peers in the dollar-bond market may extend for a while, as investor caution over expanding bond supply is offset by short-term momentum, said Anders Faergemann, a senior money manager at Pinebridge Investments in London.

“There’s no catalyst for me to suggest that the spreads will widen to levels seen last year,” Faergemann said. “This demand for African paper can carry on for a while because the global macro environment is benign.”

Emerging-market borrowers have raised almost $400 billion in foreign bonds so far in 2019, a record on a year-to-date basis, as the Federal Reserve signaled it was in no hurry to tighten monetary policy further, the European Central Bank boosted stimulus and expectations grew for easing in Japan.

It has revived the hunt for higher yields in riskier emerging markets that was the hallmark of the Fed stimulus era. The premium investors receive to own African sovereign dollar bonds rather than US Treasuries was at 461 basis points on Monday, according to JPMorgan Chase & Co indexes.

African bonds have posted total returns of 8.1% this year, better than any other emerging economic region, JPMorgan data shows. That’s lowered Standard Bank’s measure of African sovereign-bond yields to 7.39% from a 33-month high of 8.65% in November.

A list of proposed African bond sales:

South Africa

Government is considering a sale of $2 billion this month as part of a budgeted $6 billion in external debt in the next three fiscal years.

Ghana

Officials will meet investors this week in Boston, New York and London and may choose to issue immediately if the feedback is favourable. Plans to raise $2 billion in foreign-currency debt to help finance the budget and will take on another $1 billion if the yield it must pay is lower than the rate for its existing liabilities.

Benin

New kid on the block; West African country with GDP of $10 billion is preparing for its first-ever sale of Eurobonds. Sale will be benchmark-sized, denominated in euros, with a maximum maturity of eight years.

Kenya

Said to plan offer of $2 billion of bonds in the first half to fund infrastructure development and promote growth to 6.1% this year. Proceeds will also refinance $750 million of debt maturing in June, and fund part of the nation’s 2018-19 budget.

Angola

Plans to sell $2 billion of Eurobonds in the second quarter as part of its public-debt plan.

Ivory Coast

World’s top cocoa grower plans $1 billion bond sale even as it reviews its financing needs against rising borrowing costs Issue may be scheduled for May or June.

© 2019 Bloomberg L.P