Zambia’s Eurobonds have lost value of 10 per cent this month alone, more than any of the 75 countries in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index.
According to Bloomberg, these losses have extended their decline to 23 per cent this year and sent spreads over U.S. Treasuries soaring to more than 1,000 basis points.
The plunging value has been triggered by an emerging-market selloff that is piling pressure on Zambia to stabilize its finances and strike a bailout deal with the International Monetary Fund (IMF) on an elusive US $1.3 billion balance of payments support package.
This development comes in the wake of Zambia’s creditworthiness having been downgraded twice in the past month, with Standard & Poor’s Global Ratings who cut the foreign-currency rating to ‘B -’ from ‘B’ last week on account of the growing budget deficit and pace of debt-accumulation expected to be higher than it previously forecast.
Moody’s Investors Service also lowered its assessment to Caa1 shortly before that.
Bloomberg also reports that yields on Zambia’s US $1 billion of notes maturing in 2024 rose 28 basis points to 14.22 per cent by 14.50 hours, London time yesterday, extending their increase in 2018 to 775 basis points.
Commenting on the Eurobond yields, Kaan Nazli, a strategist in The Hague with Neuberger Berman, the US $300 billion money manager that owns Zambian Eurobonds, cautioned that country’s yields could rise even further due to weak macroeconomic fundamentals.
“Zambia’s yields could rise further because its fundamentals are still very fragile,” Bloomberg quoted Nazli as saying.
“It’s not a place that investors would rush into even if emerging markets become popular again. People will be cautious about Zambia until it produces better numbers or gets an IMF deal.”
However, Zambia’s revenue streams are strong enough to avert a default at least until 2022, when the US $750 million of Eurobonds mature, according to Nazli.
Bloomberg’s efforts to get a comment from the Ministry of Finance failed to yield any reply by press time.