Credit concerns over Egypt are having a spillover effect on Africa’s high-yield sovereigns, according to strategists at Goldman Sachs Group Inc.
(Bloomberg) — Credit concerns over Egypt are having a spillover effect on Africa’s high-yield sovereigns, according to strategists at Goldman Sachs Group Inc.
The extra yield investors demand to own the north African country’s sovereign dollar bonds rather than US Treasuries jumped to a record 1,258 basis points on Wednesday, according to a JPMorgan Chase & Co. index. Bond yields in Nigeria, Kenya, Angola and Senegal have been rising too, even though their risk profiles are different.
“Egypt has significantly higher short-term external vulnerabilities than the rest of these sovereigns,” wrote Goldman strategists including Sara Grut in a note to clients. “Moreover, this group of sovereigns benefit from external anchors, such as relatively high oil prices in Angola, Gabon and Nigeria, or are backed by IMF programs: Kenya and Senegal.”
Egypt has about $39 billion in outstanding debt in dollars and euros, including $3.3 billion due next year, according to data compiled by Bloomberg.
The International Monetary Fund has said it is waiting to see Egypt enact more of the wide-ranging reforms it pledged before carrying out the first review of a $3 billion rescue program.
Kenya, which has $2 billion principal in debt due next year, is planning a sovereign issuance to refinance what is owed.
Grut and her colleagues said the performance of Africa’s high yielders tended to be “very highly correlated to Egypt’s.”
“But putting the underperformance of these sovereigns into context, the current market pricing suggests that parts of EM credit are pricing a higher probability of a very negative state of the world as a whole.”
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