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Africa bond rally halts amid Ebola fear

Africa bond rally halts amid Ebola fear

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The rally in African debt markets has come to an abrupt halt as countries in the west of the continent battle to contain the spread of Ebola.

Nigeria, which has been declared Ebola-free by the World Health Organisation (WHO), has seen prices fall for its dollar-denominated government debt, pushing the yield up from 4.9 percent to 5.4 percent in the space of about a week the Financial Times reports.

Ghana has deferred the sale of a local currency bond scheduled for issue this month and yields on debt issued by the region’s largest economy are at a six-month high.

The sell-off in sub-Saharan Africa’s government bonds comes towards the end of a record year for African debt issuance.

So far in 2014, governments have borrowed close to $7 billion in international debt markets, according to figures from Dealogic, the data provider, and the region’s economic progress remains contingent on overseas investment.

Tanzania and Ethiopia are both believed to be making plans to debut on global capital markets in the near future, joining recent first-time borrowers such as Kenya, Rwanda and Ivory Coast.

However, the confluence of Ebola, falling commodity prices and a wider sell-off in risky global assets threatens these plans.

“Price movements like this cause severe issues for countries that want to issue new debt,” said one London-based banker.

Seven months after the outbreak of Ebola was recorded, the infectious disease has left more than 4,500 Apeople dead and threatens state failure in West Africa, according to the WHO.

Sierra Leone, Guinea and Liberia, the three countries worst affected, have requested faster help from global organisations, and the International Monetary Fund (IMF) has warned that trade, tourism and investment are at risk if the disease continues to spread.

This week, the IMF cut its 2014 economic forecast for sub-Saharan Africa from 5.5 percent to 5 percent.

At the same time, financial markets have experienced their most turbulent week since the eurozone crisis and prices for commodities exported by many African countries have come under pressure from lower global demand.

“The external headwinds have been all conquering and are factors beyond the control of the countries,” said Stuart Culverhouse, chief economist with Exotix. “The sell-off was indiscriminate.”
Yields on Ghana’s bonds due in 2026 jumped from 7.9 percent to 8.6 percent last week and remain above 8 percent.

“The sell-off has been brutal,” said Zin Bekkali, chief executive of Silk Invest, a boutique assets manager. “Although it has not been repeated in local currency debt markets, which are far larger than international debt markets.”

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