Riskiest Emerging-Market Bonds Are Vulnerable to Further Selling

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(Bloomberg) -- Even after this year’s rout in emerging markets, the riskiest sovereign bonds still look vulnerable.

The selloff, sparked by rising U.S. rates, has pushed up yields for high-grade borrowers to the most relative to Treasuries since the last rate-hike cycle. Bonds with weaker credit ratings have so far been relatively unscathed, signaling they may have some catching up to do.

Ghana is a case in point. It’s been meeting investors in the U.S. and London with a view to selling 10- and 30-year dollar debt. The B- rated issuer will probably pay a yield of more than 7 percent for 10-year dollar bonds, if the 7.3 percent current market rate on its 2026 bond is anything to go by. That yield is up more than 40 basis points in the past two weeks. But while the yield premium over U.S. Treasuries has widened in sympathy, it’s still more than 100 basis points tighter than it was when the debt was sold in 2014, a sign it could continue to increase.

It’s a similar dynamic for Angola, which may have received bids for three times the $3 billion offered in a two-part deal, but also had to pay the highest yield for a sovereign this year of above 9 percent on its 30-year security.

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