World Bank Warns Africa Bond Bonanza Risks Hurting Nations

(Bloomberg) -- The World Bank warned that high demand for African Eurobonds will place countries at a higher risk of debt distress once an increase in U.S. rates prompts investors to turn their backs on emerging-market assets.

African sovereigns such as Ghana and Benin joined a slew of high-yielding borrowers this year who took advantage of the dovish turn by the Federal Reserve and some of the world’s most important central banks to sell bonds. The premium investors receive to own African nations’ dollar bonds rather than U.S. Treasuries was at 450 basis points on Wednesday, according to JPMorgan Chase & Co. indexes.

“We are very concerned,” World Bank Chief Executive Officer Kristalina Georgieva said in an interview Wednesday in Ivory Coast’s commercial capital, Abidjan. The situation can become “very difficult,” she said.

There are 17 African countries that are in high debt, or high distress, said Georgieva. Those in the worst situations include Chad, Republic of Congo, Gambia, Mozambique, South Sudan and Zimbabwe, she said.

“We have lived through a long period of low interest rates and low yields and that has made African countries very attractive destination for those seeking higher yield,” Georgieva said. “Interest rates are still pausing; that isn’t going to last forever.”

By mid-March, emerging-market borrowers had raised almost $400 billion in foreign bonds so far in 2019, a record on a year-to-date basis.

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