SA’s power utility woes weigh on rand, bonds

“This is SA-specific,” said Tony van Dyk, a trader at TreasuryOne. “The big negative is the continued load shedding. The public enterprise brief … that Eskom is insolvent hasn’t helped,” he said.

At 7.50pm the benchmark R186 was bid at 8.92%, the highest level since January 2. Bond yields move inversely to their prices, and a higher yield reflects lower demand.

“Whether this recent retrace is an opportunity to add exposure [to South African bonds] or a sign to make for the hills is dependent upon how confident one is with the finance minister’s ability to administer the bitter medicine, despite the implications it may have for
the ruling party’s alliance partners and prospects in the upcoming polls,” said Sasfin Securities fixed-income dealer Alvin Chawasema.

Investors are not expected to participate in aggressive
long-term position-taking ahead of next week’s budget policy statement, said Rand Merchant Bank fixed-income trader Michelle Wohlberg.

On Monday, Moody’s Investors Service warned that the government’s plan to unbundle Eskom might not pan out due to resistance from unions and opposition parties. Moody’s said the plan was, on its own, unlikely to help the utility’s financial situation.

It said power supply was expected to remain tight until the mid-2020s.

Emerging-market risk assets have found favour so far in 2019, due to a more dovish stance from the US Federal Reserve, which has indicated it will not raise rates as  quickly as previously expected.

With Bloomberg