Zambia Bonds Rally as Morgan Stanley Praises Budget Restraint

Zambia’s dollar bonds climbed after its 2025 spending plan won praise from Morgan Stanley even as it drew concern from locals battling with the impact of the nation’s worst drought in a century.

The advance on its $1.7 billion in notes due 2033 sent yields tumbling by the most on record, reaching 7.86%. They’ve dropped more than 30 basis points since Finance Minister Situmbeko Musokotwane announced the budget on Sept. 27, reversing a weakening trend that started after the government completed a debt restructuring in June.

The bonds have performed so well that Secretary to the Treasury Felix Nkulukusa on Monday said the window may be closing to exchange them in a potential debt-for-nature swap.

Neville Mandimika, emerging-markets strategist at Morgan Stanley, upgraded his view on Zambia’s bonds to “like” after the spending plan showed a strong fiscal performance, with revenues exceeding expectations and expenditures controlled in the first half of 2024.

The outlook showed room for further consolidation next year, which will be helped by rising output and prices for copper, Zambia’s biggest export, Mandimika said.

Still, Musokotwane’s plan to trim 2025’s fiscal deficit to 3.1% from 6.4% estimated for this year means tighter spending controls.

Read the original piece on Bloomberg here.