Trea­sury sells record amount of se­cu­ri­ties

Business Day - - NATIONAL - Agency Staff /Bloomberg

The Trea­sury had no trouble sell­ing a record amount of debt at its weekly fixed-rate auc­tion on Tues­day — but it came at a cost.

Pri­mary deal­ers placed or­ders for more than three times the amount of debt on sale, snap­ping up yields as much as 75 ba­sis points higher than were avail­able two months ago.

The coun­try’s debt has sagged amid con­cern about a widen­ing bud­get deficit and a pop­ulist turn in gov­ern­ment spend­ing ahead of the gov­ern­ing ANC party’s lead­er­ship elec­tions in De­cem­ber.

Deputy Pres­i­dent Cyril Ramaphosa and MP Nkosazana Dlamini-Zuma are widely re­garded as fron­trun­ners in the race to lead the party.

The sale at­tracted bids of R10.9bn for the R3.3bn of notes of four ma­tu­ri­ties, with clear­ing yields on all four bonds jump­ing. Se­cu­ri­ties ma­tur­ing in 2044 were the most pop­u­lar, with de­mand of four times the amount on of­fer.

How­ever, the clear­ing yield of 10.405% was 46 ba­sis points higher than when the notes were last sold on Oc­to­ber 17.

Bonds due in 2031 cleared at 9.985%, up 75 ba­sis points since the last auc­tion of the debt on Au­gust 29.

The Trea­sury also sold debt ma­tur­ing in 2037 and 2048.

In­vestors clearly felt those yields com­pen­sated them for the risk of credit down­grades, which may come as soon as next week.

They may have a point: only in Tur­key and Brazil, among ma­jor emerg­ing-mar­ket is­suers, will they find higher rates. Still, a down­grade of the coun­try’s lo­cal-cur­rency rat­ing to junk may lead to an ex­o­dus of in­vestors man­dated to hold in­vest­ment-grade debt, send­ing yields even higher.

“To me, widen­ing bud­get deficits and ex­plod­ing debt is­suance will be the trig­gers for more down­grades,” said Win Thin, global head of emerg­ing­mar­kets strat­egy at Brown Broth­ers Har­ri­man.

“Bond buy­ers are re­ally putting them­selves at risk by load­ing up on new is­suance here,” Thin said.

The Trea­sury in­creased is­suance at the weekly auc­tion from R2.65bn to raise an ad­di­tional R122bn of debt needed over the next three years to plug the widen­ing fis­cal short­fall.

The de­te­ri­o­rat­ing debt tra­jec­tory threat­ens to trig­ger a down­grade of the lo­cal­cur­rency debt rat­ing to junk by S&P Global Rat­ings and Moody’s In­vestors Ser­vice, both of whom are re­view­ing their as­sess­ments on Novem­ber 24.

Nkosazana Dlamini-Zuma

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