SA bonds continue to find support despite domestic headwinds
At 2pm, the benchmark government 10-year bond had weakened, rising four basis points to 8.15%. Bonds yields move inversely to bond prices.
The rand was flat against the dollar at R14.1863/$, but firmed 0.14% to R15.8864/€ and 0.53% to R17.6569/£. The euro was 0.16% stronger at $1.1197.
The recent support for SA bonds lies in investors’ hunger for yield, and the market is pricing in the prospect of SA being downgraded into junk status by Moody’s Investors Service, said Old Mutual Multi-Managers strategists Dave Mohr and Izak Odendaal in a note. “SA’s government bond yields are now higher than Brazil’s, both in dollar and local currency terms, even though Brazil’s credit ratings are lower.”
SA’s debt burden was a major headwind, and while the rand and local bonds are currently finding a reprieve from general interest in emerging markets, longer term prospects are grimmer, said Mercato Financial Services analyst Nico du Plessis in note.
SA looks set to be downgraded into junk status, Du Plessis said. “The catalyst for full-blown junk might well materialise through the next downturn when SA’s fiscal fragility and the desperate need to head down the road of of austerity, is highlighted.”
On Tuesday, most global markets traded cautiously ahead of further signals of future US Federal Reserve interest-rate policy, with a speech by Fed chair Jerome Powell being watched for later. Powell will also testify before the US congress on Wednesday, amid much speculation as to the pace and scope of future Fed interest-rate cuts.
Source: businesslive.co.za