Business Maverick

Foreigners Are Dumping South African Bonds as Junk Status Looms

By Bloomberg 14 August 2019
Caption
The Johannesburg CBD skyline as seen from the 50th floor of the Carlton Centre, the tallest building in Johannesburg, South Africa on Tuesday, July 17 2018. Pic: Waldo Swiegers / Bloomberg

Investors have been dumping South African government bonds at a rate of almost 2 billion rand ($132 million) a day in August.

With issuance increasing and a downgrade to junk a looming possibility, non residents have sold a net 14.4 billion rand of the debt in August so far, according to JSE Ltd. data compiled by Bloomberg. That’s an average of 1.8 billion rand a day. The sales have wiped out inflows at a time when the country needs foreign investment to close a current-account deficit that was equivalent to 2.9% of gross domestic product in the first quarter.

The government increased the amount of local-currency debt sold at weekly auctions by 37% last week to help pay for a 128 billion-rand bailout for Eskom Holdings SOC Ltd., the state-owned electricity company. That will push up borrowing and widen the budget deficit, placing the country’s last-remaining investment-grade rating at risk. Moody’s Investors Service, which rates South Africa’s debt at Baa3, is reviewing its assessment in November.

Foreign ownership of South African government debt fell to 37.9% at the end of July, the lowest level this year, from as high as 42.8% in March 2018, according to National Treasury data. Foreigners are exiting despite yields that are among the highest in emerging markets, suggesting they’re worried a downgrade to junk would see the nation’s bonds kicked out of indexes that track investment-grade debt, such as Citigroup Inc.’s World Government Bond Index.

Though foreign ownership is already the lowest this year, the selloff has continued unabated. Inflows have turned into net outflows of 3.2 billion rand for the year in August — even at a time when a world awash with negative yields is fueling demand for riskier assets such as emerging-market debt.

In dollar terms, South African local-currency bonds have underperformed all major emerging markets in August except Argentina’s. Yields on benchmark government securities have risen 111 basis points this month, while the rand has depreciated 6.3% against the dollar, further eroding returns for foreign investors.

Yields on benchmark 2030 rand bonds climbed five basis points on Wednesday to 9.17%, near a two-month high on a closing basis. The rand weakened 1.1% to 15.3037 per dollar. DM

Gallery

In other news...

South Africa is in a very real battle. A political fight where terms such as truth and democracy can seem more of a suggestion as opposed to a necessity.

On one side of the battle are those openly willing to undermine the sovereignty of a democratic society, completely disregarding the weight and power of the oaths declared when they took office. If their mission was to decrease society’s trust in government - mission accomplished.

And on the other side are those who believe in the ethos of a country whose constitution was once declared the most progressive in the world. The hope that truth, justice and accountability in politics, business and society is not simply fairy tale dust sprinkled in great electoral speeches; but rather a cause that needs to be intentionally acted upon every day.

However, it would be an offensive oversight not to acknowledge that right there on the front lines, alongside whistleblowers and civil society, stand the journalists. Armed with only their determination to inform society and defend the truth, caught in the crossfire of shots fired from both sides.

If you believe in supporting the cause and the work of Daily Maverick then take your position on the battleground and sign up to Maverick Insider today.

For whatever amount you choose, you can support Daily Maverick and it only takes a minute.

Support Daily MaverickPayment options


Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or if you are already an Insider.

Business Maverick

Elias Masilela: private sector should ‘stop bickering’ and become part of the solution

By Ray Mahlaka

Donald Trump is the oldest president to be elected to a first term in office. The sentient naartjie is 70-years-old.