Dollar-denominated bonds issued by smaller and riskier emerging economies came under renewed pressure on Wednesday. Pakistan’s longer-term sovereign bonds saw another big decline, sliding over 6 cents and dropping below the critical 70-cent mark, an indicator of distressed debt, Reuters reported.
This came after the implementation of 104 percent tariffs on Chinese goods by the United States. The aggressive move by President Donald Trump has severely impacted frontier market debt.
Similar downward pressure was observed in longer-dated bonds from Sri Lanka, Nigeria, and Egypt, each declining between 3.5 and 4.5 cents in thin trading conditions.
The sell-off first began last week when Trump announced sweeping new tariffs on over 1180 countries. Since then, many frontier market bonds have lost 10 cents or more, with yields rising into double-digit territory. This spike in borrowing costs is making it increasingly difficult for these nations to access international capital markets.
The sharp increase in yields reflects investor concern that these economies could face mounting challenges in securing external financing.
Several frontier economies, especially in Africa, had only recently regained access to Eurobond markets after being shut out during the pandemic and the global inflationary shock following Russia’s invasion of Ukraine. That earlier crisis cycle had forced some, such as Ghana and Zambia, into default.
The latest escalation in US-China trade tensions is further raising fears of a global economic slowdown.
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