As African debt markets increasingly offer yield and sanctuary, the case for investors’ dual debt strategy

As African debt markets increasingly offer yield and sanctuary, the case for investors’ dual debt strategy 

By Miranda Abraham, Head of Loan Syndications at RMB London

As delegates descend on Cape Town for the LMA (Loan Market Associations)/ICMA (The International Capital Markets Association) Africa Annual Summit later this month, the conversations of money managers will likely drift from the usual specific deal chatter to a more fundamental structural shift.

The historic bifurcation between African loan and bond markets is dissolving.

Driven by a necessity to deploy capital in a yield-starved world and enabled by financial innovation, these two distinct pools of liquidity are converging in both structure and investor appetite.

For the sophisticated investor, the question is no longer whether to allocate to African bonds or loans, but increasingly: why not do both?

The implication for the market is clear: the convergence of these markets is creating a deeper, more resilient capital landscape for African issuers while offering investors a unique sanctuary of yield and diversification.

This is not merely a temporary overlap but a structural evolution where loans are being repackaged into note formats and institutional money is flowing directly into syndicated lending books.

To understand this shift, we must first look at the global macroeconomic backdrop.

Investors have become akin to the proverbial boiled frog, acclimated to an environment of perpetual volatility. In a world where geopolitical headlines scream of potential global conflict—where the developing world appears to be regressing and hypothetical "NATO vs NATO" scenarios no longer seem entirely far-fetched—Africa has emerged as a paradoxically predictable geography.

While traditional Emerging Markets like Russia and Ukraine remain effectively out of bounds, and the Middle East offers surprisingly low yields due to immense local liquidity and high credit ratings, Africa stands out as the premier destination for yield.

This flight to yield has flooded the African bond market with liquidity, driving pricing down to historic lows.

We need only look at the secondary market performance of Côte d’Ivoire, a BB rated credit, where Z-spreads (the extra yield that a bond offers over the risk-free Treasury yield curve, used to assess the bond's value and credit risk) are trading between 118bps and 339bps across the curve.

Even with recent volatility in US Treasuries—sparked by the hawkish nomination of Kevin Warsh as Fed Chair—African sovereign curves like Angola’s have managed to bull-steepen, a situation in the yield curve where short-term interest rates fall faster than long-term rates, resulting in a steeper curve., supported by strong oil prices and liability management.

However, this compression in bond yields has created a dilemma.

With bond pricing becoming extremely low, institutional investors are forced to look elsewhere for returns. Enter the syndicated loan market. Here, a pricing premium can still be found, reflecting the less liquid nature of the product compared to the highly tradable Eurobond sector. Consequently, traditional bank lenders in the loan market are being buoyed by a surge of interest from institutional funds.

The convergence is most visible in how these instruments are structured.

We are witnessing a trend where loans are repackaged into note formats to make them more palatable for funds that require listed securities. Simultaneously, more institutional investors are building the capability to book assets in loan format directly, giving them an edge over other institutions. This flexibility allows them to access sovereigns that have not yet issued international Eurobonds, such as Uganda, Tanzania or Botswana, thereby achieving geographic diversification that a bond-only mandate could never provide.

Furthermore, risk mitigation has become a form of financial alchemy in the African loan space.

Through insurance wraps, guarantees, or Export Credit Agency (ECA) protection, arrangers are transforming underlying single B or BB risks into investment-grade assets rated A or better. This allows conservative investors, who are otherwise restricted to investment-grade holdings, to gain exposure to African growth stories while maintaining rigorous credit standards.

The market is also seeing more innovative hybrid structures, longer dated, guaranteed debt  that is then being syndicated to institutional investors that can absorb much longer tenors than commercial banks.   Often these hybrids contain bond characteristics to make them more appealingt o institutional investors, such as no prepayment or at least prepayment penalties.

The data from the last two years underscores this complimentary relationship.

2025 was a stellar vintage for African debt, with bond volumes hitting USD 33.2bn and syndicated loans reaching USD 20.4bn. While the headline loan volume for 2025 was lower than the USD 29.7bn recorded in 2024, the underlying activity tells a different story.

The number of loan deals actually increased to 72 in 2025, up from 65 in 2024. This discrepancy reveals that 2024 volumes were skewed by a handful of "elephant" loans to borrowers like Sudan, Nigeria, Kenya, and Egypt, whereas 2025 represented a broader, more diversified flow of credit.

Looking ahead to the rest of 2026, the pipeline remains robust.

With global economic stability looking questionable—exacerbated by shifting US monetary policy, an uncertain global economic backdrop and heightening geopolitical risks—issuers have every incentive to come to market now to lock in funding.

Ultimately, the African loan and bond markets are proving to be complimentary rather than competitive.

They thrive together. As the market grows in sophistication, the demand for varied capital market tools expands. For the investor sitting in Cape Town this February, the strategy is clear: the convergence of structures and appetite means the most prudent play is to leverage the liquidity of bonds while harvesting the premium of loans.

In this new era of African debt, doing both is not just an option; it is the optimal strategy.

ENDS