Senegal’s dollar-denominated bonds surged on Tuesday, outperforming other emerging and frontier market securities, as investors keenly followed the political developments unfolding in the West African nation.
The yield on Senegal’s 2048 dollar bonds fell by 15 basis points, settling at 9.7%, the best performance among the 678 securities tracked in Bloomberg’s index of emerging and frontier sovereign debt. Yields on the country’s 2031 and 2033 securities also experienced a similar decline.
This improvement marks a sharp reversal from the previous week when the yield on the 2048 bond rose by 30 basis points. The increase was triggered by President Bassirou Diomaye Faye’s announcement of plans to dissolve the opposition-controlled parliament to secure a ruling majority. The political uncertainty surrounding this move had weighed heavily on Senegalese bonds, contributing to a brief sell-off.
President Faye’s dissolution of parliament is expected to take place after September 12, once the current legislature completes its two-year tenure, the minimum time required for the president to call for new elections. This strategic step is seen as an effort to consolidate political power and push forward Faye’s reform agenda. Since his election, Faye has faced resistance from lawmakers loyal to former president Macky Sall, hindering his proposed changes.
Barclays strategists Fabian Herold and Andreas Kolbe noted that the political volatility had made Senegal’s bonds “cheap relative to peers in the same rating category” and recommended purchasing the country’s 2048 notes.
Carmen Altenkirch, an analyst at Aviva Investors Global Services Ltd., highlighted that political uncertainty, combined with delays in securing an International Monetary Fund (IMF) programme, had further dampened the outlook for Senegalese bonds. Compared to peers like Ivory Coast, Senegal’s bonds have been under greater pressure.
Adding to the challenges, the IMF recently revised Senegal’s 2024 economic growth forecast down to 7.1%, from its initial estimate of 8.3%. The revision was primarily driven by weaker-than-expected economic activity in the first quarter, linked to political tensions surrounding the March presidential elections. Additionally, delays in starting gas production, now pushed back to December 2024, have further complicated Senegal’s economic prospects.
Despite these hurdles, there is optimism. Altenkirch noted that if parliamentary elections are called and Faye manages to secure a majority, Senegal’s reform agenda and IMF program could be quickly reinstated. This scenario could lead to a strong rebound in the country’s bonds, with 10-year yields potentially dropping below 8% “if everything goes right.”
