Talking technicals
GARTH MACKENZIE: A crisis of confidence
Uncertainty in SA seems certain to put the rand and bond market under further pressure
Unravelling confidence in SA in the past two months is evident in technical developments in the currency and bond markets. The value of the rand has slipped 13% since early September, from R12.80/US$ to R14.55/$ at the time of writing. Similarly, the yield on the R186 government bond has risen by 100 basis points over the same period — an increase of 12%. It is clear that SA is in financial trouble. The medium-term budget policy statement delivered by Malusi Gigaba on October 25 pulled no punches. The finance minister didn’t sugarcoat the fact that SA’s finances have deteriorated over the past year. What was worse was that he offered no solution to steering the country towards a better path.
A downgrade to subinvestment grade by either agency means SA’s government bonds will fall out of the Citi World Government Bond Index. That will trigger R100bn-R150bn in forced sales of SA government bonds — a substantial number, with dire consequences for bond rates and for the rand. Rece...
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