The yield curve for Zambia’s Eurobonds, which are the worst performers in emerging markets in the past year, is getting increasingly inverted – meaning that shorter-dated securities have higher yields than those with longer maturities.

That’s rare, and often occurs when countries are already in default, with one example being Venezuela, reports Paul Wallace, a financial analyst at Bloomberg.

Finance Minister Margaret Mwanakatwe told the Bloomberg earlier this month
that there was no need to worry about the government’s debt load, but investors are sending the opposite signal.

Yields on Zambia’s $750 million of bonds due in 2022 have climbed almost 500 basis points since early February to 17.45 percent. Its 2027 bonds trade at 15.8 percent. No other country that’s not in default has yields as high.

The inversion is partly because the shorter bonds have a bullet maturity and have to be paid back in one go, while the longer ones amortize, making them less risky, according to Neville Mandimika, an analyst at Rand Merchant Bank in
Johannesburg. But it also suggests traders are getting more nervous, he said.

“That yield curve inversion can be seen as an indicator of how concerned investors are about the situation,” Mandimika said. “In times of extreme debt concerns, the less risky bond will price at a premium to the bullet bond.”

According to Mwanakatwe, Zambia is borrowing to improve the country’s infrastructure and the debt should be seen as an investment, but Zambia is battling to shore up its finances and has been in on-off talks with the International Monetary Fund for more than a year about a loan.

Investors are also watching dwindling foreign-exchange reserves which have halved in the past three years to $1.5 billion. They now cover barely 10 percent of Zambia’s external debt, which is the lowest ratio among all African nations that have sold dollar bonds, according to data compiled by Bloomberg.