Demand falls at bond auction as economy worsens

Demand at South Africa’s weekly government fixed-rate bond auction was the lowest in two months as investors held back before the publication of economic data that showed the country’s recession extending to a fourth quarter.

The primary dealers that participate in the sales placed R13.1 billion ($776 million) of orders for the R6.6 billion of securities on sale, according to National Treasury data. That’s the lowest since June 8, according to data compiled by Bloomberg. The bid-to-cover ratio of less than two compares with an average of 3.1 since April 1, when the government increased the amount sold at auctions from R4.53 billion.

Data released after the sale showed South Africa’s economy shrank an annualised 51% in the three months through June compared with the previous quarter. The median estimate of economists in a Bloomberg survey was for a contraction of 47%. The economy slumped 17.1% from the same period a year earlier.

Yields on short-end bonds ticked lower after the GDP data as investors priced in an increased chance of further monetary easing when the central bank’s Monetary Policy Committee meets on September 17. Long-bond yields rose, steepening the curve, as the struggling economy weighed on the fiscal outlook.

Demand for 2026 bonds, the shortest-duration notes sold at Tuesday’s auction, was relatively robust, with a bid-to-cover ratio of 2.3. For the 2030 bonds the ratio was 1.7 and for 2035 securities 1.9.

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