Remember those Zambian, Mongolian, Rwandan Bonds? Where are they Now?
Many countries, from the emerging hopeful to the rich and troubled, recently had the opportunity to borrow money cheaply, riding the wave of money originated by the Federal Reserve’s stimulus. Zambia, Mongolia, Slovenia, Rwanda, Nigeria became the new territories in the global hunt for yield.
But how these are these bonds doing now the stimulus looks to be moving into reverse gear?
Zambia issued a $750 million 10-year dollar bond in September last year at a yield of 5.625%, on a par with Spain at the time. Paying a coupon of 5.375%, this bond was a huge hit, with investors placing $12 billion of orders.
Where it is now: Trading at a price of around 89, for a yield of around 6.9%. A bargain if bought now, not so much for investors who bought it at issuance. During this period the price of copper, the vast majority of the country’s exports, dropped 15%, hardly helping the bonds’ performance.
Mongolia sold $1.5 billion five- and 10-year dollar bond in November last year with a yield of 4.125% and 5.125% respectively. Their size was equivalent to one fifth of the Mongolian economy. Impressive growth rates and big mining resources were a main selling point.
Where are they now: The five-year yields around 5.9%, the 10-year around 7%. During this time, the bond has suffered from the country’s political uncertainty while a bumpy relationship with Rio Tinto over the Oyu Tolgoi mine threatens to damage future investments in the country.
Rwanda issued at the likely high of the yield-hunt frenzy, at the end of April. The African country managed to snatch a 6.875% yield for its debut $400 million 10-year bond. Impressive growth rates and good governance were main selling points.
Where it is now: The bond was caught up in the emerging market rout and lost ground. It’s now hovering around a price of 90, with an 8% yield. Many investors are holding on to their bonds, as an 8% yield will help them recover in one year the hit they took when the bond tanked from 98 to 91 cents in a few weeks.
Slovenia in May silenced critics who called it the “next Cyprus”. It sold two bonds, for a total of $3.5 billion, collecting $15 billion demand in the process.
Where it is now: The five-year yields now around 5.3% against 4.95% at issuance, the 10-year 6.4% against 6% at issuance. Meanwhile, Slovenia has its finances covered for 2013 and part of 2014 while the government moves to fix the country’s troubled banks.
Nigeria, an African giant, didn’t have the advantage of buoyant market conditions, selling its bonds after investors had already started pulling billions from emerging market assets. Nevertheless, it collected $4 billion of orders for a $1 billion dollar bond.
Where it is now: the bonds performed well, the $500 million five-year yields now 4.6% against 5.375%, while the $500 million 10-year yields 6% against 6.625%. Emerging markets partially recovered ground after the Fed clarified on the conditions of its withdrawal of economic stimulus, while oil-rich Nigeria suffered maybe excessively from investors caution.
To be sure, yields in isolation are not the only story, at least not for those investors in for the long term.
The good news is that these economies grow, and when they do, they grow a lot. Rwanda grew more that 8% in the past decade, Nigeria stays well over 6% year and Zambia expands at constantly over 6% since 2010. Long-term investors look at these parameters more than day-by day market prices, and over the long term these bonds have plenty of time to recover the lost ground. In the meantime, they sit on fat yields, cash in rich coupons and wait.
But how these are these bonds doing now the stimulus looks to be moving into reverse gear?
Zambia issued a $750 million 10-year dollar bond in September last year at a yield of 5.625%, on a par with Spain at the time. Paying a coupon of 5.375%, this bond was a huge hit, with investors placing $12 billion of orders.
Where it is now: Trading at a price of around 89, for a yield of around 6.9%. A bargain if bought now, not so much for investors who bought it at issuance. During this period the price of copper, the vast majority of the country’s exports, dropped 15%, hardly helping the bonds’ performance.
Mongolia sold $1.5 billion five- and 10-year dollar bond in November last year with a yield of 4.125% and 5.125% respectively. Their size was equivalent to one fifth of the Mongolian economy. Impressive growth rates and big mining resources were a main selling point.
Where are they now: The five-year yields around 5.9%, the 10-year around 7%. During this time, the bond has suffered from the country’s political uncertainty while a bumpy relationship with Rio Tinto over the Oyu Tolgoi mine threatens to damage future investments in the country.
Rwanda issued at the likely high of the yield-hunt frenzy, at the end of April. The African country managed to snatch a 6.875% yield for its debut $400 million 10-year bond. Impressive growth rates and good governance were main selling points.
Where it is now: The bond was caught up in the emerging market rout and lost ground. It’s now hovering around a price of 90, with an 8% yield. Many investors are holding on to their bonds, as an 8% yield will help them recover in one year the hit they took when the bond tanked from 98 to 91 cents in a few weeks.
Slovenia in May silenced critics who called it the “next Cyprus”. It sold two bonds, for a total of $3.5 billion, collecting $15 billion demand in the process.
Where it is now: The five-year yields now around 5.3% against 4.95% at issuance, the 10-year 6.4% against 6% at issuance. Meanwhile, Slovenia has its finances covered for 2013 and part of 2014 while the government moves to fix the country’s troubled banks.
Nigeria, an African giant, didn’t have the advantage of buoyant market conditions, selling its bonds after investors had already started pulling billions from emerging market assets. Nevertheless, it collected $4 billion of orders for a $1 billion dollar bond.
Where it is now: the bonds performed well, the $500 million five-year yields now 4.6% against 5.375%, while the $500 million 10-year yields 6% against 6.625%. Emerging markets partially recovered ground after the Fed clarified on the conditions of its withdrawal of economic stimulus, while oil-rich Nigeria suffered maybe excessively from investors caution.
To be sure, yields in isolation are not the only story, at least not for those investors in for the long term.
The good news is that these economies grow, and when they do, they grow a lot. Rwanda grew more that 8% in the past decade, Nigeria stays well over 6% year and Zambia expands at constantly over 6% since 2010. Long-term investors look at these parameters more than day-by day market prices, and over the long term these bonds have plenty of time to recover the lost ground. In the meantime, they sit on fat yields, cash in rich coupons and wait.
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