Zambia Finally Gets Some Zoom as its Eurobond Returns Top 10%

(Bloomberg) -- Zambia’s eurobonds are proving a great trade for investors who like extreme outcomes.

They have swung from the worst-performing sovereign bonds in emerging markets in 2018 to the best-performing so far this year.

The southern African copper producer’s dollar debt has made a total return of 10.3 percent since the end of December, more than any of the other 75 nations in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index (if you exclude the defaulted bonds of Venezuela, which have soared on hopes of a regime change).

Not much has actually improved recently in Zambia for foreign investors -- who fled the country last year, fearing it was getting closer to a default -- to get excited about. The government hasn’t progressed on financing talks with the International Monetary Fund, and there’s been no announcement whether it’s closer to convincing China to loosen terms on billions of dollars of bilateral loans. Bank of America Merrill Lynch says there’s a risk the country will be forced into a debt restructuring if it can’t achieve one or both of those.

Instead, Zambia’s benefited from investors’ newfound bullishness toward risky assets as they anticipate a trade deal between the U.S. and China, and the Federal Reserve slowing down its monetary tightening.

Its eurobonds have proved irresistible for the likes of NN Investment Partners, which manages about $270 billion of assets from The Hague, and London-based Merian Global Investors, which said this month they’d been “unjustifiably beaten up.”

Yields on the government’s $1 billion of notes maturing in 2024 have dropped almost 260 basis points in 2019 to 13.37 percent. That’s helped drive down Zambia’s spreads over U.S. Treasuries. Investors are still showing signs of nervousness -- at 988 basis points, those spreads are easily the highest in emerging markets among countries that aren’t in default.

To contact the reporter on this story: Paul Wallace in Lagos at pwallace25@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Hilton Shone, Robert Brand

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