Triparty repo: A lever for boosting liquidity
27 May 2025
Cyril Louchtchay de Fleurian, director, operational risk advisory and development at the Liquidity and Sustainability Facility, looks at how triparty repo can help offset the ‘African premium’
Image: stock.adobe.com/jamesbin
Over the past 15 years, financing through African eurobonds has more than doubled — from 15 to 34 per cent of total financing — reaching a market value of nearly US$180 billion by 2025. 61 per cent of this volume is issued by sovereign issuers (according to the think tank Development Reimagined, 70 per cent of this amount involves five states — Angola, Egypt, Ghana, Nigeria, and South Africa), and 39 per cent by supranational issuers such as the African Development Bank. This dynamic underscores the undeniable attractiveness of African markets for international investors.
A eurobond is a bond issued on the international market and denominated in a currency other than that of the issuing country, known as a 'hard currency'. Therefore, in addition to bilateral financing for 23 per cent (China for two-thirds, France, Saudi Arabia, and Japan) and multilateral aid for 34 per cent (World Bank, European Investment Bank etc.), African continent financing from investors via eurobond issuance is taking on a predominant role.
This represents a decisive step toward accessing larger financing volumes, diversifying funding sources, and achieving greater flexibility, while enhancing visibility on international markets through established interest rate benchmarks.
The African premium
While this observation is encouraging, it remains that African countries, on average, finance themselves at a higher cost than other countries with equivalent credit ratings when issuing eurobonds. The ‘African premium’, or risk premium, indicates that African countries pay higher interest rates on eurobond issuances compared to similar countries in other regions. In other words, these countries pay a surcharge to access international funding. This leads to an increase in debt costs, with debt service now exceeding 50 per cent of revenues in several African countries
Some examples drawn from recent research by the African Development Bank — in ‘African Economic Outlook 2024’ — and the International Monetary Fund (IMF) — in ‘Sub-Saharan Africa's risk perception premium: In the search of missing factor’ — illustrate the magnitude of this phenomenon.
In 2021, the average interest cost on sovereign debt in advanced economies was 1.1 per cent, and 4.9 per cent in emerging economies. Meanwhile, yields on 40 per cent of African bonds still exceeded 8 per cent. The comparison with Argentina, which is rated ‘CCC’ by S&P, is instructive — this Latin American country, which has defaulted nine times, issued a 100-year bond in 2017 with a 7 per cent coupon. Angola, rated ‘CCC+’ by S&P, which has not defaulted since the end of its civil war in 2002, was charged a 9 per cent rate for shorter 30-year bonds issued in 2018.
Excluding periods of major crises, Sub-Saharan African countries borrowed on the eurobond market — between 2014 and 2021 — at a cost 155 basis points higher, on average, compared to their peers in other regions. It is estimated that they pay 500bps more in interest when borrowing on international financial markets, compared to borrowing from the World Bank or the African Development Bank. This is in a context where defaults are not particularly concentrated on the African continent.
According to Fitch for example, of 23 sovereign defaults recorded since 2009, only five concern Africa (Mozambique 2016, Zambia 2020, Mali 2022, Ghana 2022, and Chad 2022). Even more striking, a study by Moody's Analytics in 2022 on over 8,000 infrastructure projects indicates that Africa has the lowest default rate at 1.9 per cent, compared to 12.4 per cent for Eastern Europe, 10.1 per cent for Latin America, 6.6 per cent for North America, and 4.6 per cent for Asia and Western Europe.
How can this situation be explained?
While the credit ratings from S&P, Moody's, and Fitch significantly influence African borrowing costs, other factors also play a critical role in this dynamic. The IMF's analysis indicates that investors consider other indicators not covered by rating agencies, such as the liquidity of African eurobonds, which are traded less frequently, both on the primary and secondary cash markets, and on the repo market. To compensate for this loss of opportunity investors demand higher yields. Other more diffuse factors include the lack of reliability of economic data, which constitutes an obstacle to investment, as investors face increased uncertainties and higher information costs. Finally, the support of domestic central banks remains fragile, heavily constrained by difficult fiscal positions, limited international reserves, vulnerable currencies, and persistent inflationary pressures.
The African premium is therefore rooted in a lack of eurobond liquidity, in the opacity of both fewer and less-reliable economic statistics, and in the more unpredictable support of local central banks. In addition, African countries suffer from endogenous economic shocks, compounded by exogenous macroeconomic risks due to their dependence on the US dollar and the euro (e.g. the 2008 financial crisis, Covid-19, war in Ukraine etc.). Ultimately, the African premium largely echoes the high cost of the US dollar.
Towards an operational market solution
In this context where the liquidity of African eurobonds appears as a central issue, how, and in what way, could the development of a general collateral (GC) repo market mitigate the African premium? At first glance, the development of a GC repo market in Africa requires an approach that should combine:
• A clear and effective regulatory framework (harmonisation and supervision).
• Modern market infrastructure (clearing and settlement systems, trading platforms, central securities depository).
• Strengthened institutional capacities (training and international cooperation, primary market development, central bank support).
• Improved transparency and communication (reliable and regular statistics, communication on monetary policies).
• A reduction in credit risk (improvement of sovereign ratings, strengthening fiscal frameworks, control of debt and debt service burden state by state).
• The realisation of these ambitions, while relevant, falls within a long-term perspective. Tangible results could take several years, subject to numerous internal and external variables that are not controllable at this stage.
Improving the sustainability of African debt compels us to prioritise a more 'immediate' temporal environment. Specifically, promoting eurobond liquidity is the ideal starting point — because it is purely operational — independent of the aforementioned structural approach, and involves participants experienced in the logic of international financial markets.
The logic of triparty repo
The principle is to integrate the funding of African eurobonds within the existing market dynamics, systems, and procedures. In other words, we propose to use the best international standards, proven and functional, which already mobilise non-investment grade debt. The triparty repo market precisely meets this definition, since among the mobilised assets, 6.7 per cent have a rating below ‘BBB-’ according to the latest International Capital Market Association's European Repo and Collateral Council statistics.
In terms of volume, we are talking about a pool of €73 billion of assets based on a total European triparty repo market valued at €1,000 billion. The international financing of lower-rated assets therefore already exists, and moreover, in the current context of rate cuts initiated by the Fed and the European Central Bank (ECB), presents significant advantages in terms of profitability.
It is worth emphasising that the very principle of triparty repo involves outsourcing the daily valuation, margin calls, and substitutions of assets within a basket of securities to a triparty agent. The triparty agent's job is to maintain a constant balance between the amount of cash lent in a repo transaction, and the market value of the collateral deposited as security. If an asset in the basket deteriorates, a margin call is made. If the asset deteriorates beyond a predefined threshold (or in the event of default), then the asset is substituted with another security that meets eligibility criteria or a predefined list. Haircuts may be applied, allowing for the mobilisation of an additional portion of securities to secure the amount of cash lent (e.g. 110 in market value of securities mobilised against 100 in cash lent).
In other words, an African eurobond is refinanced with the same operational setup as any other asset, with the same transparency and security for investors. The robustness of refinancing a basket of securities depends more on the operational and contractual process of mobilising and monitoring said basket than on the intrinsic rating of the securities constituting the basket.
A world first
The triparty repo market is distinguished by a unique operational and legal framework, allowing two counterparties to trade on a pre-negotiated basket of securities. Each pair of banks has one or more baskets of securities, defined according to eligibility criteria or a predetermined list of securities specific to them. This approach, while extremely adaptable, leads to a fragmentation of liquidity — there are almost as many baskets as there are pairs of counterparties.
To overcome this constraint, the Liquidity and Sustainability Facility (LSF) has developed a generic basket of securities. This system is based on a list of securities common to the main European triparty agents and leverages the interoperability features offered between triparty agents As a result, there is a concentration of liquidity in a single point, allowing for the definitive and secure pricing of the value of a basket of securities consisting of African GC eurobonds, paving the way for more efficient risk management and greater transparency in the market.
The liquidity provided promotes the reduction of counterparty risk, improves transparency, increases the level of competition between investors, and contributes to the stabilisation of volatility. This process promotes the acceptability of securities as collateral — as reliable security for other securities finance transactions — which has the effect of gradually lowering interest rates.
LSF's objectives
This cut in rates is crucial for the development of the African continent. For example, debt service has more than tripled in the last 10 years and now exceeds 50 per cent of the revenues of several countries: Kenya, Angola, Malawi, Rwanda, Uganda, and Zambia, which together account for more than 12 per cent of the continent's population.
Three countries — Côte d'Ivoire, Benin, and Kenya — have already issued dollar-denominated eurobonds in the first quarter of 2024 to refinance maturing debt, but at higher rates than the refinanced debt (respectively 6.60 per cent at 11 years, 7.96 per cent at 14 years, and 10.4 per cent at 7 years). This situation reflects both the increase in debt and the higher interest rates paid to private creditors.
To help address the challenges of liquidity and sustainability in African sovereign debt, the LSF has developed the 'LSF GC Africa' triparty repo basket. Currently, approximately US$2 billion of African Eurobonds are utilised across heterogeneous high-yield triparty repo baskets, resulting in a fragmented market. For 2025-26, the LSF aims to concentrate this fragmented market by mobilising US$1 billion of African Eurobonds through the standardised 'LSF GC Africa' basket. Consolidating liquidity in this single, well-defined framework will enhance price transparency and help reduce the 'African premium' discussed throughout this article. To support this market development and address any operational or commercial challenges, the LSF is establishing a collaborative advisory group including investment banks with expertise in African debt, triparty agents, and asset managers.
A eurobond is a bond issued on the international market and denominated in a currency other than that of the issuing country, known as a 'hard currency'. Therefore, in addition to bilateral financing for 23 per cent (China for two-thirds, France, Saudi Arabia, and Japan) and multilateral aid for 34 per cent (World Bank, European Investment Bank etc.), African continent financing from investors via eurobond issuance is taking on a predominant role.
This represents a decisive step toward accessing larger financing volumes, diversifying funding sources, and achieving greater flexibility, while enhancing visibility on international markets through established interest rate benchmarks.
The African premium
While this observation is encouraging, it remains that African countries, on average, finance themselves at a higher cost than other countries with equivalent credit ratings when issuing eurobonds. The ‘African premium’, or risk premium, indicates that African countries pay higher interest rates on eurobond issuances compared to similar countries in other regions. In other words, these countries pay a surcharge to access international funding. This leads to an increase in debt costs, with debt service now exceeding 50 per cent of revenues in several African countries
Some examples drawn from recent research by the African Development Bank — in ‘African Economic Outlook 2024’ — and the International Monetary Fund (IMF) — in ‘Sub-Saharan Africa's risk perception premium: In the search of missing factor’ — illustrate the magnitude of this phenomenon.
In 2021, the average interest cost on sovereign debt in advanced economies was 1.1 per cent, and 4.9 per cent in emerging economies. Meanwhile, yields on 40 per cent of African bonds still exceeded 8 per cent. The comparison with Argentina, which is rated ‘CCC’ by S&P, is instructive — this Latin American country, which has defaulted nine times, issued a 100-year bond in 2017 with a 7 per cent coupon. Angola, rated ‘CCC+’ by S&P, which has not defaulted since the end of its civil war in 2002, was charged a 9 per cent rate for shorter 30-year bonds issued in 2018.
Excluding periods of major crises, Sub-Saharan African countries borrowed on the eurobond market — between 2014 and 2021 — at a cost 155 basis points higher, on average, compared to their peers in other regions. It is estimated that they pay 500bps more in interest when borrowing on international financial markets, compared to borrowing from the World Bank or the African Development Bank. This is in a context where defaults are not particularly concentrated on the African continent.
According to Fitch for example, of 23 sovereign defaults recorded since 2009, only five concern Africa (Mozambique 2016, Zambia 2020, Mali 2022, Ghana 2022, and Chad 2022). Even more striking, a study by Moody's Analytics in 2022 on over 8,000 infrastructure projects indicates that Africa has the lowest default rate at 1.9 per cent, compared to 12.4 per cent for Eastern Europe, 10.1 per cent for Latin America, 6.6 per cent for North America, and 4.6 per cent for Asia and Western Europe.
How can this situation be explained?
While the credit ratings from S&P, Moody's, and Fitch significantly influence African borrowing costs, other factors also play a critical role in this dynamic. The IMF's analysis indicates that investors consider other indicators not covered by rating agencies, such as the liquidity of African eurobonds, which are traded less frequently, both on the primary and secondary cash markets, and on the repo market. To compensate for this loss of opportunity investors demand higher yields. Other more diffuse factors include the lack of reliability of economic data, which constitutes an obstacle to investment, as investors face increased uncertainties and higher information costs. Finally, the support of domestic central banks remains fragile, heavily constrained by difficult fiscal positions, limited international reserves, vulnerable currencies, and persistent inflationary pressures.
The African premium is therefore rooted in a lack of eurobond liquidity, in the opacity of both fewer and less-reliable economic statistics, and in the more unpredictable support of local central banks. In addition, African countries suffer from endogenous economic shocks, compounded by exogenous macroeconomic risks due to their dependence on the US dollar and the euro (e.g. the 2008 financial crisis, Covid-19, war in Ukraine etc.). Ultimately, the African premium largely echoes the high cost of the US dollar.
Towards an operational market solution
In this context where the liquidity of African eurobonds appears as a central issue, how, and in what way, could the development of a general collateral (GC) repo market mitigate the African premium? At first glance, the development of a GC repo market in Africa requires an approach that should combine:
• A clear and effective regulatory framework (harmonisation and supervision).
• Modern market infrastructure (clearing and settlement systems, trading platforms, central securities depository).
• Strengthened institutional capacities (training and international cooperation, primary market development, central bank support).
• Improved transparency and communication (reliable and regular statistics, communication on monetary policies).
• A reduction in credit risk (improvement of sovereign ratings, strengthening fiscal frameworks, control of debt and debt service burden state by state).
• The realisation of these ambitions, while relevant, falls within a long-term perspective. Tangible results could take several years, subject to numerous internal and external variables that are not controllable at this stage.
Improving the sustainability of African debt compels us to prioritise a more 'immediate' temporal environment. Specifically, promoting eurobond liquidity is the ideal starting point — because it is purely operational — independent of the aforementioned structural approach, and involves participants experienced in the logic of international financial markets.
The logic of triparty repo
The principle is to integrate the funding of African eurobonds within the existing market dynamics, systems, and procedures. In other words, we propose to use the best international standards, proven and functional, which already mobilise non-investment grade debt. The triparty repo market precisely meets this definition, since among the mobilised assets, 6.7 per cent have a rating below ‘BBB-’ according to the latest International Capital Market Association's European Repo and Collateral Council statistics.
In terms of volume, we are talking about a pool of €73 billion of assets based on a total European triparty repo market valued at €1,000 billion. The international financing of lower-rated assets therefore already exists, and moreover, in the current context of rate cuts initiated by the Fed and the European Central Bank (ECB), presents significant advantages in terms of profitability.
It is worth emphasising that the very principle of triparty repo involves outsourcing the daily valuation, margin calls, and substitutions of assets within a basket of securities to a triparty agent. The triparty agent's job is to maintain a constant balance between the amount of cash lent in a repo transaction, and the market value of the collateral deposited as security. If an asset in the basket deteriorates, a margin call is made. If the asset deteriorates beyond a predefined threshold (or in the event of default), then the asset is substituted with another security that meets eligibility criteria or a predefined list. Haircuts may be applied, allowing for the mobilisation of an additional portion of securities to secure the amount of cash lent (e.g. 110 in market value of securities mobilised against 100 in cash lent).
In other words, an African eurobond is refinanced with the same operational setup as any other asset, with the same transparency and security for investors. The robustness of refinancing a basket of securities depends more on the operational and contractual process of mobilising and monitoring said basket than on the intrinsic rating of the securities constituting the basket.
A world first
The triparty repo market is distinguished by a unique operational and legal framework, allowing two counterparties to trade on a pre-negotiated basket of securities. Each pair of banks has one or more baskets of securities, defined according to eligibility criteria or a predetermined list of securities specific to them. This approach, while extremely adaptable, leads to a fragmentation of liquidity — there are almost as many baskets as there are pairs of counterparties.
To overcome this constraint, the Liquidity and Sustainability Facility (LSF) has developed a generic basket of securities. This system is based on a list of securities common to the main European triparty agents and leverages the interoperability features offered between triparty agents As a result, there is a concentration of liquidity in a single point, allowing for the definitive and secure pricing of the value of a basket of securities consisting of African GC eurobonds, paving the way for more efficient risk management and greater transparency in the market.
The liquidity provided promotes the reduction of counterparty risk, improves transparency, increases the level of competition between investors, and contributes to the stabilisation of volatility. This process promotes the acceptability of securities as collateral — as reliable security for other securities finance transactions — which has the effect of gradually lowering interest rates.
LSF's objectives
This cut in rates is crucial for the development of the African continent. For example, debt service has more than tripled in the last 10 years and now exceeds 50 per cent of the revenues of several countries: Kenya, Angola, Malawi, Rwanda, Uganda, and Zambia, which together account for more than 12 per cent of the continent's population.
Three countries — Côte d'Ivoire, Benin, and Kenya — have already issued dollar-denominated eurobonds in the first quarter of 2024 to refinance maturing debt, but at higher rates than the refinanced debt (respectively 6.60 per cent at 11 years, 7.96 per cent at 14 years, and 10.4 per cent at 7 years). This situation reflects both the increase in debt and the higher interest rates paid to private creditors.
To help address the challenges of liquidity and sustainability in African sovereign debt, the LSF has developed the 'LSF GC Africa' triparty repo basket. Currently, approximately US$2 billion of African Eurobonds are utilised across heterogeneous high-yield triparty repo baskets, resulting in a fragmented market. For 2025-26, the LSF aims to concentrate this fragmented market by mobilising US$1 billion of African Eurobonds through the standardised 'LSF GC Africa' basket. Consolidating liquidity in this single, well-defined framework will enhance price transparency and help reduce the 'African premium' discussed throughout this article. To support this market development and address any operational or commercial challenges, the LSF is establishing a collaborative advisory group including investment banks with expertise in African debt, triparty agents, and asset managers.
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