Sub-Saharan Africa tops emerging markets’ bond woes

Emerging markets bonds may be experiencing the worst start to a year on record but nowhere is the pain greater than in sub-Saharan Africa.

The world’s poorest continent accounts for half of the 20 worst-performing dollar bonds issued by developing nations in 2016. It’s also the only region in the world where not one country’s debt has produced a positive return, with African securities falling 5.4 percent this year, compared with the average 1.3 percent loss in emerging markets, the worst first two weeks of a year since Bloomberg began compiling data in 2010.

The malaise means governments will find it more expensive to issue debt just when they most need financing to plug budget deficits that are widening amid a plunge in prices for commodities from oil to copper.

While rising yields might make African Eurobonds more alluring to investors, prices are likely to fall further because of global risk aversion and the slump in raw materials, according to Standard Bank Group Ltd., the continent’s largest lender by assets.

“You’re seeing particularly violent moves in African bonds because you have an investor base retrenching from frontier markets, and the underlying fundamentals of these countries are suffering,” Ray Zucaro, chief investment officer at RVX Asset Management, said by phone from Aventura, Florida, last week. “Given the backdrop of commodity prices and fear of rising dollar rates, it’s hard to envision a lot of issuance.”

Average yields on sub-Saharan African Eurobonds have surged to 9.4 percent, compared with 5.8 percent in April last year, according to the Bloomberg USD Emerging Market Sovereign Bond Index.