Frontier market EM yields

The announcement of a CFA 5 billion Cote d'Ivoire bonds 2009-2014 6,95% listed on the BRVM selling at only a 3% discount makes one wonder if yields can get much lower in frontier markets (Cote d'Ivoire defaulted in the not to distant past).

Some think that it is completely mad to think that frontier market yields cannot go to lower levels, even with them having the inverse government debt picture of developed markets. We disagree. Consider that in the past, at the peak of the developed markets bull period in bonds (the ultimate lows in yields), the curve gots so flat that the average spread between the long bond and Fed funds rate was only 100bps. It would seem that just as the BB frontier bond universe was over-looked and hence had the greatest return potential, the pick up in the frontier yeilds, and in particular the local and corproate yields, are still attractive. With the structural case, thhe long end of the frontier universe now also carries with it a compelling total return opportunity (inflation expectations are still far too high).