Fixed Income Analysis / Bahamas

The Bahamas becomes a frontier bond market

  • The Bahamas issued a new US$600mn 2032 bond last week, priced to yield 9.25%
  • We think it's the highest yield on a new sovereign bond issue with this kind of tenor this year
  • This kind of yield typically sends a desperate signal
The Bahamas becomes a frontier bond market

We don’t always write about specific new issues, but felt the Bahamas’ 12-year launched last week priced at 9.25% is worthy of comment. It’s the second-highest yield this year on a sovereign new issue after El Salvador, but that was a much longer 32-year bond. We think the Bahamas issue is the highest yield on a new sovereign issue with this kind of medium-term tenor this year.

The Bahamas issued a new US$600mn 2032 bond with a coupon of 8.95%, but priced to yield 9.25% (g-spread 841bps and z-spread 851bps). El Salvador issued a 32-year at 9.5% in July (see here). Prior to that, this year Ghana (pre-Covid) and Egypt (post-Covid) had issued 40- and a 30-year bonds, respectively, both priced to yield 8.875%.

This kind of yield typically sends a desperate signal, although with the need to refinance a US$248mn 2020 Bridge Facility (according to use of proceeds on Bond Radar – we don't have any more details), the sovereign may have felt it had little choice. The issue removes one element of near-term refinancing risk, and the increase in net debt will be smaller than the headline amount, but it does come at a cost. Moreover, pricing didn’t tighten from the initial price talk as so many often do.

The Bahamas has been hit hard by two successive external shocks – first, Hurricane Dorian in autumn 2019, from which the country had only just begun to recover, and second, the Covid-19 pandemic, which has devastated its tourism sector. Central bank data show tourism arrivals fell 96% yoy in July, and are down 60.5% YTD (the Bahamas reopened its borders for tourism on 1 July, albeit with some restrictions). Tourism receipts are c88% of goods and services exports and 25% of GDP. Tourism receipts were US$3.3bn in 2019 according to the IMF. There are few economies as tourist-dependent.

The IMF expects real GDP to fall by 12.5% in 2020, with the unemployment rate doubling to 20%, while the government expects the fiscal deficit to widen to 11.6% of GDP (financed largely by external borrowing).


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