Zambia Dollar Debt Return Highest Yield in Africa

Zambia Kenya and Ghana Eurobond Yelds 2015-2016

Zambian USD debt has returned a yield of 7.3% in June 2016, the highest within a list of 18 African countries monitored by Bloomberg.

The media house explains that the high return was a result of speculations that the IMF would soon release an aid package to the African country.

Among the main buyers of Zambian debt were Citigroup (NYSE:C) and JP Morgan (NYSE:JPM).

Signs of improving economy and a considerable pick up potential in the bonds’ price were the reasons to stock Zambia’s debt into debt portfolios.

Zambia offers yields that are too difficult to find elsewhere due to the low interest rates from central banks in developed countries, explained Citigroup Chief Strategist for EMEA Luis Costa.

USA, Europe and the UK are expected to remain low interest rates for a long time, therefore, Citigroup will continue with this attractive position on Zambian debt, Costa added.

Additionally, JP Morgan considers that the Zambian Kwacha (ZMW) is stabilizing and that this factor together with fiscal austerity measures will support the country’s economy.

According to the bank, Zambia would improve this year its fiscal deficit that last year grew to 8.1% of its GDP, the highest in the last ten years.

The Zambian authorities are confident that the fiscal deficit would come back under the 8.0% of GDP but there is still room to improve the economy and get back the investors’ confidence.

A signal is the current yield on Zambian Eurobonds due in 2024, which has improved 0.5% from a peak of 16.3% but is still higher than other countries’ debt rated at the same level of risk.

Zambia sold USD1b of these Eurobonds in 2014 at a rate of 8.5%, however, it reached its peak in 2015 due to depreciating ZMW as copper prices tumbled.

As of August 2016, Zambia yields an interest rate of 15.8% that is not far from yields of more developed African countries as Nigeria and Kenya yielding 15.59% and 14.6% according to Trading Economics.