Ethiopia Clash Sparks Bond Slump Amid Emerging-Market Rally

(Bloomberg) -- Investors in Ethiopia’s Eurobonds are losing out on the rally in emerging-market debt.

The country’s 2024 dollar securities dropped for a fourth day on Monday as conflict in the northern Tigray region continued. Clashes between government soldiers and fighters loyal to the region’s ruling party stoked fears of a broader civil war at a time when the government is struggling to end ethnic violence shaking Africa’s second-most populous country.

The country’s $1 billion of Eurobonds maturing in 2024 have declined 2.8% this month, the most after Venezuela among emerging-markets. A gauge tracking developing-nation dollar-denominated debt rose 1.6% in the month through Friday.

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“We do not think that the conflict has materially increased the risk of default for the time being, but with tensions simmering on several fronts across the country and region, continued escalation could distract from reform efforts and undermine Ethiopia’s investment case,” said Patrick Curran, a London-based senior economist at Tellimer. “Against this backdrop, the political risk premium will remain elevated.”

Yields on the 2024 notes rose nine basis points by 2:14 p.m. in London, bringing the increase in the past four days to 111 basis points.

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