Ebola, Oil Slump Taking Toll on African Sovereign Bonds

By Ben Edwards 

African government bonds, much sought-after by yield-hunting investors this year, took a heavy knock Wednesday amid concerns about the Ebola outbreak and a slide in global oil prices.

West Africa is leading the declines. Nigeria--the continent's largest oil producer--saw prices on its bonds drop by almost three cents on the dollar Wednesday, mirroring similar falls across the region. Global oil prices fell sharply Tuesday as output remains high despite waning global demand. Brent crude fell 1.5% to $83.78 a barrel on Wednesday, its lowest finish since Nov. 23, 2010.

A weaker global growth outlook has also prompted investors to pull back from riskier assets, meaning even African borrowers that aren't reliant on oil revenues are getting bruised. Kenya's 10-year bonds issued earlier this year, for example, slumped 2.7 cents to trade at around 102.5 cents on the dollar, Tradeweb data show.

"Africa has outperformed this year, so in a period where investors are starting to pull back, that's an obvious area to start trimming back on, " said Kevin Daly, a fund manager at Aberdeen Asset Management.

African bonds have returned 10.4% this year, according to a J.P. Morgan index. By contrast, emerging-market bonds have returned 8.65% globally, J.P. Morgan index data show.

African countries have issued almost $9 billion of dollar bonds this year, roughly in line with last year's record pace, according to Dealogic. Demand has been strong too. Kenya, for instance, attracted $8 billion of orders for its debut $2 billion deal in June.

The indiscriminate nature of Wednesday's price falls means some specialist investors might see the selloff as a buying opportunity.

"For borrowers that carry lower risks around Ebola and that may actually benefit from lower oil prices, we think we'll start to see some bottom fishing at these levels," said Mark Baker, an emerging-market fund manager at Standard Life Investments.

Mr. Baker says he has taken advantage of falling prices to buy Kenyan bonds Wednesday.

Lower oil prices may even benefit some oil producing nations such as Nigeria by helping reduce inflation, which could encourage the central bank to cut interest rates.

"If inflation comes down in Nigeria, that will be very interesting for investors," said Bryan Carter, a fund manager at Acadian Asset Management in Boston.

Other African borrowers remain in the spotlight for different reasons. Ghana, which issued $1 billion of bonds last month while at the same time seeking financial aid from the International Monetary Fund, has seen its bond prices drop sharply amid mounting concerns about the country's debt levels.

The bonds, which are due January 2026, are quoted at a cash price of about 96.5 cents on the dollar, almost four cents lower than Tuesday's close, Tradeweb data show.

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