While we have seen many African central banks tighten rates aggressively over the past year, inflation risks across the continent remain acute, suggesting that additional rate hikes are imminent.
With more rate hikes and the global macroeconomic backdrop looking more fragile than ever, the bearish bias in local currency African bonds is likely to persist in the months ahead. Note that the Bloomberg Africa (ex. SA) Local Currency Bond Index has lost around 11.5 percent since the start of the year.
The losses have been amplified by a currency devaluation in Egypt in March and a sharp sell-off in the Ghanaian cedi. Nevertheless, even when considering these events, the losses are still substantial, and the risks are skewed in favour of more losses in the last few months of 2022.