SA bond investors prepare for junk status
Tuesday's auction was oversubscribed, but yields shot up as investors anticipate a credit rating downgrade after Gigaba's medium-term budget
Investors are demanding higher interest rates from the government, anticipating a downgrade of SA’s local currency credit rating later in 2017. The Tuesday government bond auction, which took place a week after Finance Minister Malusi Gigaba’s medium-term budget policy statement, was oversubscribed, but the yield on two of the bonds offered shot up between 19 and 28 basis points to 10.09% and 10.05%. Wayne McCurrie, senior portfolio manager at Ashburton Investments, said the market was pencilling in a downgrade of SA’s debt. "Our [interest] rates are above other markets that are already [rated as] junk," he said. Brazil’s 30-year US dollar bond was trading at 5.509% on Tuesday afternoon. Its benchmark 10-year local currency bond carried a higher interest rate of 8.959%. Major ratings agencies S&P Global, Moody’s and Fitch rate Brazil’s debt as junk. The Treasury did not respond to questions about SA’s higher interest rates on Tuesday. The government received R10.5bn in bids on the d...
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