Fresh oil price rout weighs on African Eurobonds

Dollar-denominated debt of African oil and commodity exporters came under pressure on Tuesday, with investors pushing premiums demanded over less risky assets to new highs as a fresh rout in crude prices and China’s woes rattled emerging economies.

Oil prices resumed their slide, with US crude falling below $37 per barrel and Brent below $40 for the first time since early 2009 amid a global supply glut.

This added to the headache over weak November trade data from China, which cast doubt on hopes that the world’s second-largest economy would level off in the fourth quarter, spelling more pain for its major trading partners. However, copper prices were holding up on the day following losses in the previous session.

Eurobonds from African governments chalked up solid losses across the curve. Top oil exporter and Africa’s biggest economy Nigeria saw dollar-issues slip across the curve by as much as 0.7500 cents, trading at their lowest since early October.

The 2025 dollar-denominated bond issued earlier this year by fellow OPEC member and oil producer Angola shaved off 1.500 cents to hit a record low. While Gabon’s 2024 issue eased 1.600 cents to hit a record low of just over 80 cents in the dollar.

Copper producer Zambia saw prices for its 2022, 2024 and 2027 dollar-denominated issues fall by as much as 1.5 cents to the lowest level since early to mid-October. Its kwacha currency weakened nearly 2 percent against the dollar - the weakest level since end of November.

“Sentiment is pretty poor at the moment, and the move lower in the oil price has clearly affected the Eurobonds issued by oil producing countries,” said Samir Gadio, head of Africa Strategy, FICC Research at Standard Chartered Bank.

“You can also add to that the risk of a US Fed rate hike next week ... so you have co-committing factors which make it hard for the asset class to gain at the moment, even though the valuations have become nominally more attractive.”

Spreads on JP EMBIG index, reflecting the premium investors demand to hold EM bonds over ultra-safe US government bonds, also widened across African commodity producers. Spreads for Gabon blew out by 73 basis points, while Angola and Ghana added 17 bps and 19 bps respectively.