Central bank purchase of local bonds slows in August

The SA Reserve Bank’s purchases of government bonds tapered off sharply in August, under the bond buying programme launched to smooth the functioning of the local market.

Purchases slowed to just under R354m during the month — less than one fifth of the purchases made during July.

The slow down is in line with a drop off in purchases that began in June.

The Bank has slowed its uptake of government securities as market conditions have settled, and it has signalled that as market functioning normalises it will start to sell these bonds to withdraw liquidity from the market

August ’ s purchases take the Bank ’ s total holdings of government bonds to R38.7bn since it announced the programme on March 25, data from the Reserve Bank showed on Monday.

Analysts have previously pointed out, however, that the programme should remain open in light of future risks that could reignite stress on the government bond market, such as the October medium-term budget policy statement.

Markets will be watching for evidence of structural reforms to boost growth and help shore up government finances, and how it is received may affect SA’s borrowing costs and the currency.

The Bank was forced to intervene in the market, after government bonds came under pressure as investors fled to safe-haven assets amid Covid-19related panic, causing bond yields to breach the 13% mark in late March.

Along with the bond purchases, the Bank has taken other measures to support an economy hit by the effects of lockdown restrictions, including slashing interest rates to record lows of 3.5% and easing regulations to encourage banks to keep lending through the crisis.