Bonds bounce back as Bank acts

SA bonds bounced back from record lows after the Reserve Bank announced liquidity measures to ease the effects of the coronavirus on local markets, including a plan to buy government bonds.

The yield on the 2030 government bond fell 83 basis points (bps) to 11.59% on Wednesday, having surged to 12.38% on Tuesday from a 2020 low of 8.68% reached in February. Yields move inversely to prices and the surge of the past two weeks was seen as an indication of dislocation in the market as sellers struggled to find buyers.

The Bank said the purchases would promote smooth functioning of the local financial markets. “Questions arose on the purchasing programme, particularly on the funding, timing, operational measures, and so on, given our current fiscal constraint,” said Sasfin fixed-income trader Alvin Chawasema.

The yield on the R186 government bond fell 76bps to 10.48%.

Local bond yields spiked on fear about the effect of Covid-19 on the global economy. A deep recession in SA would lead to further deterioration in the government’s fiscal position, making it likelier to lose its remaining investment-grade rating. That would see its borrowing costs rise further as investors dumped local bonds.

The Bank move amounted to “quantitative easing” and was aimed at making sure “the borrowing rate for the government does not get completely out of hand”, said FNB Wealth and Investments head of external research and content, Chantal Marx.

The Bank joins several central banks that stepped in to mitigate panic in financial markets. Global equities were on the front foot on Wednesday after the US Congress approved a $2trillion stimulus package to curb Covid-19’s effects on the US economy.

Shortly after the JSE closed, the Dow was up 3.13% to 21,353.05 points. In Europe, the FTSE 100 added 1.84% and France’s CAC 40 1.99%, while Germany’s DAX 30 was down 0.61%.

Earlier, the Shanghai Composite rose 2.17%, Hong Kong’s Hang Seng 3.81% and Japan’s Nikkei 225 8.04%.

The JSE all share rose 5.17% to 43,278.25 points and the top 40 also rose 5.17%. Resources gained 7.94% and gold miners 14.58%.

At 5.49pm, the rand had firmed 0.65% to R17.3890/$, 0.42% to R18.7896/€ and 0.91% to R20.3580/£. The euro had firmed 0.18% to $1.0800.

Gold eased 0.55% to $1,613.25/oz. Platinum rose 2.04% to $721.92. Brent crude lost 2.15% to $27.13 a barrel.