SA bonds rally after index exit is finalised

Rand strengthened against the dollar, after falling a combined 3.4% in the past two sessions.
Image: Waldo Swiegers / Bloomberg

Bonds gained and the rand rallied after South Africa’s exit from a fixed-income index tracked by funds overseeing trillons of dollars was finalised, removing a key risk overhanging the country’s markets.

The country’s debt was officially ejected from the FTSE World Government Bond Index — which tracks investment-grade debt and is followed by $3 trillion of funds — on April 30 after South Africa received a full deck of junk ratings following a cut by Moody’s Investors Service in March. Usually, that would have resulted in an immediate exit for the bonds, but the expulsion was postponed until the end of April given market volatility and liquidity constraints caused by the coronavirus pandemic.

South Africa had a 0.44% weighting in the index, and with tracking funds having to divest, analysts have estimates capital outflows of between $2 billion and $10 billion. Yet foreign investors were net buyers of South African bonds in the four days leading up to the WGBI rebalancing, while yields on benchmark 10-year securities fell more than 60 basis points.

“Broadly speaking, investors were pre-positioned,” said Kieran Curtis, a London-based director of investment at Aberdeen Asset Management. “The Moody’s downgrade had been such a long time coming that many active fund managers will either have sold, or will have the flexibility to continue to own and presumably are comfortable with that.”

Sales by passive funds are probably almost complete, though some funds may allow a longer period to rebalance their portfolios, Curtis said. Outflows from South African bonds reached 60 billion rand ($3.2 billion) in the four months through April 30, according to JSE data, with foreign investors reducing their holdings to 33% of the debt, from as high as 43% two years ago.

The rand advanced 0.7% to R18.68 per dollar by 1:21pm in Johannesburg, after falling a combined 3.4% in the past two sessions. Yields on the most-liquid 2026 local-currency bond fell a fifth day, down nine basis points to 8.48%, below the five-year average of 8.68%. Yields on 10-year notes declined 8 basis points to 10.22%.

© 2020 Bloomberg

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

COMMENTS   3

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

But we were told the downgrade was priced in at R14.50.

Can we all get a refund R4 per $ asset we own from the analysts please?

We’re looking at you, Simon “It’s priced in, okes” Brown.

Do not stress, the Rand will continue it’s path of loosing value, from R6.80 (2011) to R18.60 in 9 years is kind of devastating for the average Joe.
To put it in real terms 2l Full cream Clover milk was 9 years back R10,99, today R29.99!! That with milk prices always under pressure for producers.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: