---
title: "Rand, Bonds Fall After Record Monthly Budget Gap"
description: "The rand dropped, underperforming most emerging-market peers, and yields on South African local-currency bonds rose after data showed the government ran a record budget deficit in July."
type: "NewsArticle"
publisher: "Daily Maverick"
site: "https://www.dailymaverick.co.za"
section: "Business Maverick"
author: "Bloomberg"
author_url: "https://www.dailymaverick.co.za/author/bloomberg/"
canonical_url: "https://www.dailymaverick.co.za/article/2023-08-30-rand-bonds-fall-after-record-monthly-budget-gap/"
published: "2023-08-30T18:24:56"
lang: "en-ZA"
word_count: 422
---

# Rand, Bonds Fall After Record Monthly Budget Gap

> The rand dropped, underperforming most emerging-market peers, and yields on South African local-currency bonds rose after data showed the government ran a record budget deficit in July.

By Bloomberg · Published 30 August 2023, 20:24 SAST

## Key points
- South Africa's yield curve has steepened and the rand weakened as National Treasury figures show a record budget deficit, raising investor worries about increased bond issuance and fiscal risks.
- South Africa's budget deficit widened to a record, pushing yields on longer-dated bonds higher.
- The yield curve has been steepening as investor concerns mount over increased spending and lower tax revenue.
- The National Treasury announced the sale of two long-dated bonds at next week's auction, causing the yield curve to bear-steepen.
- The rand weakened 0.5% against the dollar in response to the news.

## Content

The rand weakened as much as 0.8% against the dollar after National Treasury figures showed that the budget moved to a deficit of 143.8 billion rand ($7.74 billion) for the month, the largest since at least 2004 and wider than the 115.5 billion rand forecast by economists. There was a surplus of 36.7 billion rand in June.

Yields across the local-currency bond curve climbed, with rates on longer-dated securities rising more sharply. The yield on notes due December 2026 rose three basis points to 8.89%, while those on debt maturing in 2048 jumped nine basis points to 12.37%.

South Africa’s yield curve has been [steepening](https://www.bloomberg.com/news/articles/2023-08-24/south-africa-s-yield-curve-steepens-as-fiscal-risks-mount) as a slew of local risks — including increased spending on government wages and lower-than-targeted tax revenue — fuel investor concerns that the government will have to ramp up bond issuance just as rising global yields draw capital away from emerging markets. Wednesday’s data is likely to compound those worries.

The deficit for July confirms that the October medium-term budget policy update is unlikely to show a fiscal outcome in line with the target set in February, said Carmen Nel, head of multi-asset strategy at Terebinth Capital Ltd. The ratio of debt to gross domestic product could climb as high as 75%, she said, compared with a February forecast of 73.6% for the year through March 2026.

“It is now near impossible for the government to meet the targets it set in February and so debt stabilization remains a moving target,” Nel said. “Given the wage settlement this year, pressure to make the Covid relief grant permanent, and significant demands from state-owned enterprises, the debt ratio should continue to rise in the medium term.”

Speaking to lawmakers on Wednesday, South Africa’s central bank Governor Lesetja Kganyago said it was essential that the country reduced fiscal risks. In June, the bank [expressed concern](https://www.bloomberg.com/news/articles/2023-06-13/alarm-bells-ring-as-local-investors-cool-on-south-africa-s-debt) about a growing reluctance from local investors to continue absorbing government issuance.

Demand at Tuesday’s government bond auction was the lowest in nearly two years, based on data compiled by Bloomberg. Bidding was weakest for the longest-dated, 2048 notes.

Read More: South Africa Bonds Are Pricing Too Much Risk, Deutsche Bank Says

Sentiment was strained further on Wednesday by the National Treasury’s announcement that it would sell two long-dated bonds at next week’s auction, said Michelle Wohlberg, a fixed income analyst at Rand Merchant Bank. This had resulted in the yield curve bear-steepening, she said.

The rand was 0.5% weaker at 18.5728 against the greenback by 1:02 p.m. in Johannesburg, after declining to 18.6235 earlier.