Carnage looms for SA bonds
On one level, it seems they are priced attractively. But with a downgrade looming, that’s a big risk ...
It didn’t make the headlines, but if you want a sense of just how awful finance minister Malusi Gigaba’s medium-term budget policy statement (MTBPS) was, the carnage in the bond market is a good indicator. Within hours of Gigaba’s budget, bond yields soared to their highest levels in almost two years. "The MTBPS was a brutally honest assessment of where SA is," says Leon Krynauw, head of fixed income at Sasfin Securities. With economic growth almost at a standstill and tax revenue expected to fall R51bn short of projections, things look horrid. For the bond market, the worst news to come out of the MTBPS was that government’s net debt to GDP will breach 60% in the next two years, once guarantees to state enterprises are added in. This is way above the 52% forecast in the February budget, and it will leave government debt at a staggering R3trillion by 2020. The reaction was so aggressive that it drove the key R186 10-year government bond’s yield from a close of 8.8% the day before to...
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