New bond auction levels to be announced after lockdown
The National Treasury will make clear issues about an increase in auctions to finance the budget deficit
The increase in the amount of bonds sold weekly to finance the increasing budget deficit will be announced only after SA’s 21-day lockdown ends on April 16, the National Treasury said on Friday.
The Treasury was expected to announce an increase in auction levels to cover the increase in the government’s borrowing requirements, but this has been postponed due to the coronavirus outbreak and related market volatility.
The weekly fixed-rate government bond auction amount will remain at R4.53bn, and the weekly inflation-linked government bond auction amount will remain at R1.04bn.
The Treasury has also increased the non-competitive auction from 50% to 100% of the auction amount, which allows those who bought bonds to buy additional bonds at a predetermined level.
There was a risk that under the lockdown, some of the auctions may have been under-allotted, and the Treasury increased their funding — assuming there was an increase in the uptake of the non-competitive option, said Sasfin Wealth fixed-income trader Alvin Chawasema.
An increased auction size may have increased volatility, but there has been no immediate adverse reaction to the news in the bond market, as increased issuance had been priced in, to an extent, Chawasema said.
The Treasury’s weekly fixed-rate bond auction levels increased by R1.2bn to R4.5bn in August to fund the budget deficit, which is expected to rise to 6.8% of GDP in 2020/2021.
From August, the weekly inflation-linked bond auction amount has increased by R280m.
Even before the Covid-19 outbreak, the government’s deficits over the next three years were set to stay above 6%, peaking at 6.8% in 2020/2021 and falling to 5.7% in the year ending 2023, all of which will see sharp increases in government borrowing to almost R500bn, including the repayment of existing debt, in 2022/2023 from just more than R400bn.
Correction: March 27 2020
An earlier version of this article referred to the Reserve Bank auction, when it is, in fact, the Treasury auction.