Taking events in
How SA's downgrade affects bond market
Foreign investors, in their hunt for yield, have turned aggressively risk-on towards emerging market bonds
Things look grim for SA. It finds itself in a recession, its political landscape is racked with uncertainty and scandal, and its government debt has been downgraded to the brink of full noninvestment-grade junk status. Bond yields should be racing higher, or so many may have thought. But the bond market has shrugged off a wave of bad news this year with the yield on the key R186 10-year government bond down from a peak of 9% to its current 8.5%. “It has all left a lot of local bond market players very confused,” says Malcolm Charles, head of fixed income at Investec Asset Management. Moody’s announced the downgrading of SA’s local and foreign debt ratings from Baa2 to Baa3, its lowest investment grade rating, on June 9. It was the latest piece of bad news to strike. The ratings agency also assigned SA a negative outlook. The yield on the R186 took the downgrade in its stride, blipping up only 5 basis points (bps) following the announcement. Moody’s joined Standard & Poor’s (S&P), wh...
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