Colleen Goko and Duncan Miriri
Wed, Apr 9, 2025, 1:14 AM 3 min read
By Colleen Goko and Duncan Miriri
JOHANNESBURG/NAIROBI (Reuters) -International debt issued by small emerging economies generally viewed as riskier by investors suffered another sharp drop on Wednesday, raising concerns about the countries’ ability to borrow in future as a growing trade war blasted U.S. markets.
U.S. Treasuries, the bedrock of the global financial system and benchmark for emerging market bonds, were hit by fresh selling as President Donald Trump’s eye-watering 104% tariffs on China took effect, and Beijing retaliated with 84% duties.
Across emerging markets, longer-dated bonds issued by so-called frontier economies suffered some of the heftiest falls, with Pakistan’s longer-dated dollar-denominated bonds dropping around 5 cents to be bid around the 70-cent threshold where debt is seen as distressed, Tradeweb data showed.
Longer-dated debt issued by Sri Lanka and Nigeria was down 3.5-4.5 cents, while Egypt’s bonds slipped around 2.5 cents – although trading was thin, according to market participants.
Frontier market debt has suffered sharp selloffs since Trump announced sweeping tariffs last Wednesday, with many bonds in the asset class losing 10 cents or more over the past week.
The latest rout is boosting the cost of borrowing for those economies sharply, with yields on many of the bonds reaching double digits, a level typically seen as unpalatable for tapping international capital markets.
JPMorgan’s Next Generation Emerging Markets Index (NEXGEM), which captures hard-currency bonds across frontier markets, showed yields had risen to 9.6%, driven by a sharp increase in regional sub-indexes in Asia and Africa, both of which were in the double digits, according to market participants.
“There are some concerns in the market that Frontiers will find it more difficult in the future to raise external funding due to the external market developments and possibly persistent loss in risk appetite,” said Gergely Urmossy, senior frontier markets strategist at Societe Generale.
This could lead to more currency weakness in those economies over the medium term and curtail the space for central banks to lower interest rates to shore up their economies, he added.
Many frontier market governments, especially African sovereigns, had only recently returned to Eurobond markets.
They had lost access for some two years when the fallout from COVID-19 and Russia’s full-scale invasion of Ukraine sent inflation sharply higher and fuelled a global interest rate-hiking cycle that priced those governments out, and helped push Ghana and Zambia into default.
