African dollar bonds hit by Trumps' Iran war

Spreads on African dollar-denominated bonds are widening sharply as the Iran war pushes investors toward the safety of the US dollar, driving up borrowing costs across the continent.

According to JPMorgan Chase, the African risk premium over US Treasuries rose to 367 basis points on Tuesday - a 17 basis-point jump, marking the largest closing increase since October. The widening outpaced other emerging markets in Latin America, Europe and Asia, where spreads increased by between four and 11 basis points.

Among the worst performers on Wednesday were dollar bonds from Kenya and South Africa. Distressed issuer Senegal remained under pressure, with yields on its 2031 notes climbing to 18.32%, the highest level in nearly a month.

The surge in yields reverses a trend of declining borrowing costs that gathered pace last year. Investors had responded positively to fiscal reforms in countries such as Nigeria and South Africa, while credit rating upgrades for Ivory Coast and financial support from the International Monetary Fund for borrowers like Kenya and Egypt boosted sentiment.

Rajeev de Mello, global macro portfolio manager at Gama Asset Management, said African issuers may need to wait at least two to three weeks before accessing global credit markets as investors trim risk exposure. "Emerging market sovereign spreads were among the stronger performers over the past six months," he said. "They have suffered as investors have realised profits."

Abhimanyu Yadav, head of fixed income and currencies at Mcb Investment Management Co Ltd, said countries with sufficient domestic market capacity could follow Senegal's strategy of borrowing in local currency. Egypt, Nigeria, Kenya and South Africa could adopt similar measures depending on how long the Iran conflict persists.

So far this year, dollar-bond issuances have come from Kenya, Ivory Coast, Benin, Cameroon, and the Republic of the Congo, pushing Africa's total dollar-denominated issuance to US$5.95 billion - more than triple the level recorded during the same period last year.

While borrowers secured relatively attractive rates earlier in the year, analysts say new issuance is unlikely in the near term. "It's a very uncertain time and it's hard to see investors piling into high-yield new issues right now," said Leo Morawiecki, emerging markets analyst at Aberdeen plc.

The Democratic Republic of the Congo, Africa's largest copper producer, had planned a maiden US$750 million bond sale in April, but its prospects are now uncertain.

"Those finance ministers who were slow to come this year are looking wistfully at January and February," Yadav said, reflecting on the brief window of favourable market conditions earlier in 2026.