Analysts have noted that expectations of a rate cut by the United States Federal Reserve in September have sparked interest in high-yield foreign currency bonds from Nigeria, Gabon, and Kenya.

Minutes from the US Fed’s July meeting, released on Wednesday, indicated that officials were moving closer to reducing interest rates.

According to a Bloomberg report on Thursday, analysts suggested that some of these debt securities are currently undervalued and have the potential to rally further.

The Bloomberg index of dollar-denominated sovereign bonds showed that, over the past month, bonds from Nigeria, Gabon, and Kenya had underperformed compared to their emerging and frontier-market peers.

Gabon’s bonds lost 1.2 percent, Nigeria’s fell by 0.5 percent, while Kenya’s gained 1.1 percent—though this was below the index’s average return of 2.5 percent.

However, the report noted that in the past week, these bonds had outperformed, driven by a risk rally fueled by indications that the Fed might ease its policy in September.

Analysts said Nigeria’s rising oil production and increasing foreign exchange reserves were strengthening the economy and boosting investor sentiment.

“Many African Eurobonds have already rallied strongly this year,” said Thalia Petousis, a portfolio manager at Allan Gray in Cape Town, suggesting that this could limit further gains for most of the continent’s frontier bonds.

“But investors are still using discernment around the underlying fundamentals,” she added, highlighting opportunities in Kenya after the unrest that began in June.

Danish multinational banking and financial services company Danske Bank described Nigeria as “very attractive,” citing higher foreign exchange reserves, rising oil production, and ongoing reforms despite unrest spreading from Kenya.

Nigeria’s oil output has increased to 1.75 million barrels per day of crude and condensates in August, with the NNPCL projecting that production will near two million barrels per day by the end of the year.

Additionally, external reserves stood at $36.45 billion as of Wednesday, according to data from the Central Bank of Nigeria.

Regarding yield outlook, Mark Bohlund, a senior credit research analyst at REDD Intelligence, said Nigeria’s eurobond yields have the potential to tighten, noting that “the external accounts are also in a relatively strong state, but uncertainty over economic policymaking remains high.”

Bohlund is also optimistic about Gabon, where yields do not fully reflect the country’s multi-year high oil output.

“The yields largely reflect uncertainty about the spending plans of the current military junta, heavily influenced by the very negative International Monetary Fund report released in May,” he said.

Kevin Daly, a portfolio manager at London-based Abrdn Investments Ltd., remarked that “African high-yield bonds will generally benefit from Fed easing, with high beta names such as Nigeria, Kenya, and Angola likely to outperform in the region.”