By Julia Fioretti
Ethiopia’s plans to hit the Eurobond trail once it gets a credit rating are highlighting how fast frontier debt markets are growing.
IFR data shows that sub-Saharan Africa alone issued $4.2 billion of sovereign debt in the year to September, compared to $3.6 billion in the same 2012 period. And returns on frontier market bonds have outgunned their high-yield emerging sovereign peers this year.
JPMorgan, which runs the most-used emerging debt indices of which the frontier component is called NEXGEM, says the year-to-date return on NEXGEM is around 0.7 percent – while paltry, it’s well above corporate and sovereign emerging bonds.
But supply as well as demand-side headwinds lie ahead for the sector, JPM analysts reckon.
On the demand side, there is of course the Fed taper. Frontier markets have been riding high on the back of the Fed’s $85 billion-a-month asset purchases but the end of this may leave investors being a lot more choosy when it comes to buying frontier debt.