African junk bonds are the latest trophy in the global hunt for yield

It’s a measure of the current state of financial markets that the worse the outlook for the world economy, the better it gets for African bonds.

So scant are the returns from government debt across the globe that borrowing costs for the nations of the world’s most impoverished continent are tumbling as foreign investors look for anything with an above-average yield.

And credit quality isn’t a big concern. Angola’s Eurobonds due 2025, rated six steps below investment grade at Moody’s Investors Service, rallied this month to their highest level since they began trading in 2014. And dollar debt from Mozambique, a country in default, has been on a tear too.

“Credit ratings aren’t always a differentiating factor,” said Phumelele Mbiyo, a Johannesburg-based economist at Standard Bank, Africa’s largest lender. “One must appreciate that African Eurobonds are not divorced completely from global financial-market developments. When it is risk-off globally, they sell off. When it is risk-on, they typically rally as well.”

Bonds from six African countries are among the 10 best performers this year, according to the Bloomberg Barclays Emerging Markets Sovereign Index of 74 nations. Kenya’s notes have handed investors a 20% return, compared with 11% for the gauge as a whole. Tunisia’s offering on Wednesday tempted investors with one of 2019’s highest yields for a euro-denominated sovereign bond.

But that doesn’t mean the countries have been flocking to the market to benefit from the demand. African issuance accounts for about 10% of the $152 billion in euro- and dollar-denominated sales from emerging markets this year, a smaller share than in the similar period last year.