Rand volatility and bond yields rise on news of ANC’s land-reform plan

South African bond yields rose the most in six weeks and a gauge of rand volatility climbed as investors weighed the ANC’s proposal to speed up redistribution of land.

The ANC decided to amend the Constitution to make it clearer under what conditions land can be expropriated without compensation, President Cyril Ramaphosa said late on Tuesday. The plan raised concern among some investors that a shift in the land-reform strategy would undermine property rights.

An erosion of property rights would “dent investor sentiment, and specifically foreign investors, as it creates a big risk,” said Christopher Shiells, the London-based managing analyst for emerging markets at Informa Global Markets. “There remains uncertainty over under what conditions expropriation will take place, and details need to be cleared up.”

Yields on benchmark 2026 government rand bonds jumped eight basis points to 8.66% by 11.55am in Johannesburg, the biggest increase since June 18 on a closing basis. The rand weakened as much as 0.8%, adding to Tuesday’s 0.9% drop, before paring the decline to trade 0.1% weaker at 13.2834 to the dollar.

The ANC’s latest move could be seen as a “positive” as it brought more certainly about the course of land reform, according to Old Mutual, the second-biggest investor in South African government rand bonds, with holdings of R30bn, according to data compiled by Bloomberg.

“They want to set out the conditions under which expropriation will happen,” Johann Els, the head of economic research at Old Mutual, told reporters. “It will set out the framework within which the Constitution should work. Don’t fear about your house. It’s not all property that is being targeted.”

Still, options traders are positioning for wider price swings in the rand in coming days as details of the proposal become clear. The rand’s one-week implied volatility against the dollar, based on the prices of options to buy and sell the currency, climbed 1.49 percentage point to 16.05%.

Yields on dollar-denominated debt due in 2028 rose nine basis points to 5.56%, the highest in almost a month on a closing basis, while the cost of insuring the nation’s debt using credit-default swaps increased six basis points to 187.

“There is lots of anxiety about what this will mean for the economy,” said Halen Bothma, an economist at ETM Analytics. “Politicians have tried to talk down the negatives but obviously news like this will play on investor fears on the South African economy.”

Bloomberg