Eurobonds, debts owed in a foreign currency, have become a quick and attractive way for African countries to borrow money. They are behind a sharp rise in commercial borrowing as a percentage of total external debt: it has nearly doubled from 27% in 2011 to 52% in 2020. This has increased the debt vulnerability of most African countries.
Recent developments, however, show that most of the bonds have not been structured properly. As a result, African countries are paying way over the odds relative to their sovereign risks.
Based on my bond price modelling expertise, it is my view that there are two major drivers of the mispricing of African government bonds. They are interlinked.
