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Senegal Bonds Rally as Investors Warm Up to Faye’s Presidency

(Bloomberg) -- Senegal’s sovereign dollar bonds rallied, posting some of the best gains in emerging markets, as investors bet on the western African country getting a stable government and Bassirou Diomaye Faye toning down some of the extreme policy measures he had outlined during the campaign.

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Initial apprehension of an opposition win had sent markets weaker in early trade, which gradually reversed as the market favorite, Amadou Ba, conceded Sunday’s election to Faye. The yield on debt due 2048 fell 22 basis points to 9.60% by 3:21 p.m. in London, with its price rising to 73.99 cents on the dollar. The rate on the 2033 note declined 23 basis points to 8.94%.

READ: Senegal’s Faye Set to Win Vote After Ruling Party’s Ba Concedes

Faye was named the main opposition’s presidential candidate after its firebrand leader Ousmane Sonko was disqualified from running since he was convicted of libel. A former tax inspector, Faye has never held public office. His key campaign pledges include renegotiating mining and energy contracts with private firms; pushing for reform on how the regional currency, the CFA franc, is managed; and renegotiating public debt and canceling private debt.

Initial market apprehension over Faye’s potential presidency was easing, said Sam Singh-Jami, Africa strategist at Rand Merchant Bank.

“Sonko/Faye have toned down on some of the economic changes initially proposed,” he said. “The selloff in the bonds was overdone in the first place.”

Investor Unknown

Before Ba conceded, 14 of the 19 candidates in the election had congratulated Faye on being on course to become the next president.

“The Faye/Sonko camp is largely an unknown quantity for the investor community meaning that whatever comments they make on economic policy could move the market,” said Mark Bohlund, senior credit research analyst at REDD Intelligence.

Bohlund said while Faye would likely row back on the more radical proposals, uncertainty about economic policy was likely to remain in the near term until the new president’s economic team had been announced. This would keep eurobond yields elevated.

“I still see a high likelihood that new parliamentary elections will be called in order to increase the new president’s policy leeway. I still expect Senegal to market a new Eurobond in the second half of the year,” he said.

For Danske Bank, a democratic vote was reason to stay bullish on Senegal.

“Elections went very peacefully, and confirmed Senegal is still a peaceful democracy. We are looking to increase risk on any dip,” said Soeren Moerch, a portfolio manager at the bank.

(Updates market moves, adds Ba concession)

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