Trea­sury’s weekly bond auc­tion over­sub­scribed

Cape Times - - NEWS - Ka­belo Khumalo

LO­CAL gov­ern­ment bonds yes­ter­day shrugged off fears of fur­ther sov­er­eign down­grades as Na­tional Trea­sury’s weekly auc­tion was over­sub­scribed, at­tract­ing bids of more than R10 bil­lion for the R3.3bn of notes of four bonds, with for­eign in­vestors at­tracted by higher yields.

Trea­sury sold R900 mil­lion in bonds due to ma­ture in 2048, with a clear­ing yield of 10.37 per­cent. Its 2044 bonds were sold for R850m, with a clear­ing yield of 10.31 per­cent. The 2037 se­cu­ri­ties also fetched R850m, with a clear­ing yield of 10.31 per­cent, and the 2031 bonds raked in R700m, with a clear­ing yield of 9.98 per­cent.

Reezwana Su­mad, an eco­nomic an­a­lyst at Ned­bank, said yes­ter­day that de­spite the volatile po­lit­i­cal cli­mate, and ahead of credit rat­ing re­views that might war­rant some riskoff, he saw for­eign ap­petite re­turn­ing as a re­sult of the pre­vi­ous sell-off.

“Last week, we saw for­eign ap­petite re­turn to the lo­cal mar­kets af­ter neg­a­tive lo­cal head­lines and the bear­ish Medium-term Bud­get Pol­icy State­ment (MTBPS) caused a sharp sell-off. For­eign in­vestors bought R6.5bn of South African bonds, and R1.8bn of South African eq­ui­ties, hence for the month to date the run rates are pos­i­tive,” Su­mad said.

Higher is­suance The SA Re­serve Bank last week warned that against the back­drop of pro­jected weak eco­nomic growth this year, slower-than-ex­pected gov­ern­ment rev­enue could lead to an in­crease in the is­suance of South African gov­ern­ment bonds.

The MTBPS re­vised the pro­jected gov­ern­ment bond is­suance for 2017 up­wards to about 15 per­cent of the fis­cal deficit.

The Re­serve Bank said that, un­der such con­di­tions, do­mes­tic bonds might re­main at­trac­tive for non-res­i­dent in­vestors, be­cause they are clas­si­fied as high-yield­ing se­cu­ri­ties.

“How­ever, from the fi­nan­cial sta­bil­ity per­spec­tive, there is a risk of a sud­den stop in non-res­i­dents’ ap­petite for lo­cal bonds if South Africa were to be down­graded,” said the Re­serve Bank.

Rat­ing re­view Both Moody’s In­vestors Ser­vice and S&P Global Rat­ings are ex­pected to pro­vide their credit rat­ing re­view on South Africa next week.

In its last re­view, S&P af­firmed South Africa’s longterm lo­cal-cur­rency sov­er­eign credit rat­ing at an in­vest­ment-grade BBB-, with a neg­a­tive out­look.

In June, Moody’s down­graded South Africa’s longterm for­eign- and lo­cal-cur­rency sov­er­eign credit rat­ings to Baa3 from Baa2, and as­signed a neg­a­tive out­look to all its long-term rat­ings.

Fur­ther down­grades would see the risk of South Africa’s sov­er­eign bonds be­ing ex­cluded from the World Gov­ern­ment Bond In­dex (WGBI). If this hap­pens, all global bonds port­fo­lios that are bench­marked against the WGBI could be forced to sell their hold­ings of South African gov­ern­ment bonds.

South African In­sti­tute of Race Re­la­tions chief econ­o­mist Ian Cruick­shanks said yes­ter­day’s record bond pur­chase did not mean there was sud­denly a lot of en­thu­si­asm for the coun­try’s bonds.

“What this means is that in­vestors were gen­er­ally spread­ing their bids. Peo­ple were com­ing in at a far higher weight and say­ing, ‘If the re­turn rate on the bonds yes­ter­day was 9 per­cent and today I can get them at 10 per­cent, I will take them in big­ger quan­tity’,” Cruick­shanks said.

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