SOVEREIGN DEBT
RONAK GOPALDAS: Hazards ahead if African eurobond rally comes to a sudden, nasty end
In their search for yield, financial markets have shrugged off risks posed by bad politics and bad economics
It was a good year for African financial markets in 2017. On the whole a feelgood factor returned to the continent after more than two years of subpar performance, with average yields for sub-Saharan African eurobonds dropping from lows of 8.13% in 2015 to 5.87% at the end of 2017. So far in 2018 currency and foreign currency bonds have continued to perform well, and new eurobond issuances have been oversubscribed and are attractively priced. Yet despite these improved performances, it is uncertain now whether this rosy outlook will continue or come to a sudden end. On observing these dynamics closely, three major disconnects stand out. First, financial markets rallied despite regressive domestic political developments in many countries. Second, the performance of real economies (negative) and those of their financial markets (positive). Third, a major gap has emerged between the old normal and new normal, specifically around what constitutes "unpalatable" risk. Intrigued? Let me ex...
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