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Investors punish SA for its budget with dismal auction

Demand for bonds dropped 67% from the previous sale to the lowest since March.

So that’s what bond investors think of finance minister Tito Mboweni’s maiden budget.

In the first scheduled bond auction since Mboweni delivered his fiscal update to lawmakers on October 24, demand dropped 67% from the previous sale to the lowest since March, when the amount offered was reduced to R2.4 billion ($164 million) a week, according data compiled by Bloomberg.

Primary dealers that buy bonds directly from the South African government on Tuesday placed R4.17 billion of orders, well below the R7.4 billion average over the past eight months, National Treasury data shows.

Mboweni revised growth and tax revenue forecasts lower, while targeting a wider budget deficit and higher government debt over the next three years than previously predicted. The budget was credit-negative, according to Moody’s Investors Service, the only major rating company that still ranks South Africa’s debt at investment level.

The “uninspiring” auction showed investors are betting benchmark yields are still too tight, even after they climbed to the highest level this year, said Deon Kohlmeyer, a fixed-income trader at FirstRand in Johannesburg. “The budget was not great for bonds.”

Yields on benchmark 2026 government bonds rose five basis points to 9.29% by 3 pm in Johannesburg. South African government rand bonds have lost 11% for dollar investors this year amid a record sell-off by foreign investors.

© 2018 Bloomberg L.P

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Don’t blame Mboweni – it’s the truth revealed in the mini-budget that’s doing the damage…

The bad bold sale is an indictment on 24 years of ANC (mis)rule. Too much corruption, too much mismanagement, too much poor policies, too much value intercept and not value add through transformation efforts.

You cannot undo a racial society by employing race-based methods for transformation.

You cannot transform anything off the back of failing entities.

End of comments.

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