Sub-Saharan Africa's Eurobond boom

Sub-Saharan Africa has made a significant mark in the European market's strong performance this year, with new issuances being supported by the scarcity of supply in the region. According to Samir Gadio, Head of Research at FICC Research, a combination of factors has contributed to the success of Sub-Saharan Africa-Euro bonds in 2017. One key factor is the absence of sovereign issuance in the region coupled with substantial inflows from emerging market investors. The demand for Euro bonds has outpaced the supply, not only in Sub-Saharan Africa but also in the broader emerging market universe. The favorable risk environment, particularly after the market anticipated that the Federal Reserve would not raise interest rates in the near future, has further boosted the performance of African Euro bonds. Nigeria, for example, has seen its Euro bonds surge by 12.3% year to date despite facing challenges such as weak macroeconomic conditions and forex uncertainties. The disconnect between the external factors driving the bond prices and the deteriorating domestic fundamentals in many African countries has been a key feature of this year's Euro bond market. Despite the recent downgrade by S&P of Nigeria's credit rating, the impact on the Euro bonds has been minimal, with the prices showing only marginal movement. Looking ahead to the remainder of 2017 and into 2018, Gadio anticipates a focus on carry positions in countries with less idiosyncratic risks and stronger fundamentals. While the Fed is expected to maintain interest rates in the short term, concerns about a medium-term adjustment could weigh on market expectations. Additionally, the timing of African Eurobond issuances will be crucial, as a clustering of issuances towards the end of the year could impact pricing. Overall, Gadio remains optimistic about the momentum of the African Eurobond market, although he notes that there may be limited room for further spread compression given the significant price appreciation this year. As the market continues to evolve, the performance of African Euro bonds will likely be influenced by a variety of factors, both external and domestic. In conclusion, Sub-Saharan Africa's Eurobond market has defied expectations this year, showcasing resilience in the face of challenges and seizing opportunities in a competitive global market.