Senegal Bonds Outperform as Traders Track Parliament Politics

(Bloomberg) -- Senegal’s dollar bonds outperformed emerging and frontier markets on Tuesday as investors closely followed political developments in the country.

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The yield on the West African nation’s 2048 dollar bonds fell 15 basis points to 9.7%. That was the best performance of the 678 securities in a Bloomberg index of emerging and frontier sovereign debt. Rates on Senegal’s 2031 and 2033 securities also declined.

The drop in yields marks a reversal from last week, when the rate on the 2048 debt initially climbed about 30 basis points after President Bassirou Diomaye Faye’s administration signaled plans to dissolve the opposition-controlled parliament in a bid to secure a majority.

According to Barclays strategists Fabian Herold and Andreas Kolbe, the volatility driven by political uncertainty has made the bonds “cheap relative to some peers in the same rating bucket.” They recommend purchasing Senegal’s 2048 notes.

Faye’s decision to dissolve parliament is anticipated after Sept. 12, when the current legislature has served for two years — the threshhold when the president can call new elections. The step is part of his broader strategy to consolidate power and implement his reform plans. Despite his election on promises of significant change, Faye has faced resistance from lawmakers loyal to his predecessor, Macky Sall.​

Political uncertainty and delays in an International Monetary Fund program have weighed heavily on Senegalese bonds, particularly compared to peers like Ivory Coast, said Carmen Altenkirch, an analyst at Aviva Investors Global Services Ltd.

The IMF recently revised Senegal’s 2024 economic-growth forecast down to 7.1%, from an earlier estimate of 8.3%. It attributed the downgrade to weaker economic activity in the first quarter, stemming from political tensions around presidential elections that took place in March, as well as delays in the start of gas production, now pushed to December 2024.

“If parliamentary elections are called and the president secures a majority in parliament, Senegal’s reform agenda and IMF program could quickly be reinstated,” Altenkirch said. Such a scenario could position Senegal to outperform its peers, with yields on 10-year bonds potentially falling below 8% “if everything goes right,” she said.

--With assistance from Katarina Höije.

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