Bond Markets & Exchanges

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Debt markets are markets for trading debt instruments intended to raise funding through borrowing. Bonds refer to debt issues with a duration exceeding one year, while money markets instruments refer to debt of shorter duration, such as Treasury Bills, with a maturity of up to one year. Deep and well-functioning domestic debt markets play an important role in financing government budgets as well as facilitating the flow of long-term financing from investors to private enterprises. Long-term securities are important investment instruments for institutional investors such as pension funds and insurance companies that aim to match the long-term nature of their liabilities.

Sub-Saharan debt markets are mostly dominated by short-term government securities, with activity focused on the domestic primary market and limited activity in the secondary market. Corporate debt markets are largely nonexistent in Africa, with the exception of South Africa and, to a limited extent, some North African markets. The lack of government securities of longer maturity limits the ability to establish a yield curve that would provide a benchmark for the pricing of corporate bonds.

While some secondary market bond trading is carried out on African stock exchanges and the Bond Exchange of South Africa, which is the only pure bond exchange in Africa, dealing in most markets is limited to over-the-counter transactions. Turnover is low, with most of the securities held to maturity.

In recent years, a number of African governments have entered international markets through bond issues. Several have pursued international debt issuance not only in order to fund their government budgets, but establish their presence in international markets and access internal pools of funds. However, the financial crisis and the resultant shift in investor sentiment caused several African countries, including Ghana, Kenya, Tanzania and Senegal to postpone plans for sovereign bond issues.

As sovereign balance sheets improved following external debt relief and the implementation of sound macroeconomic policies, the number of sovereign ratings in sub-sharan Africa, a key precondition for issuing debt on international markets, has multiplied. Currently, almost half of the countries in sub-Saharan Africa have a sovereign rating, compared to only three countries (South Africa, Senegal and Mauritius) eight years ago.