Article / Tuesday at 11:55 GMT

South African sovereign yields stable after massive sell-off

Fixed income Specialist / Saxo Bank
Denmark

south africa

 The storm is over, but the lull might only be temporary. Pic: Shutterstock


By Althea Spinozzi


South Africa has successfully sold 2.4bn rand (approx. 190m USD) of bonds with maturities in 2023, 2026 and 2036. The bid-to-cover ratio has been of 2.81, 3.18 and 2.91 respectively, showing that investors are still positive on this emerging market even after the large sell-off we saw last week.


Foreign investors hold approximately half of outstanding South African sovereigns and last week's sell-off  shows that when US interest rates rise, investors look to find shelter in the greenback. The equivalent of 15bn rand ($1.23bn) in South African sovereigns were sold in the week ending May 11, making it the worst sell-off in seven years, and hitting a volume nearing the one seen during the 2008 financial crisis.

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Figure one: South Africa Bond Sales to foreigners.  Source Bloomberg.

The yield on South African sovereigns denominated in the rand remains little changed and is trading within range since the beginning of the year. At the same time, Treasury yields have been rising faster than South African government bond yields in USD have, making us think that there is room for rand and dollar SA sovereigns to suffer a correction in the next few months, as US yields continue to rise.

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Figure 2: In Blue SA 5-year ZAR yield, in Green SA 2024 bond yield in USD; in Orange 5-year Treasury yield. Source Bloomberg.

The country is marketing a 12-yr and 30-yr eurobond issuance today with initial price talk of 6% and 6.375% respectively. This will be the first eurobond to be marketed under the new president, Cyril Ramaphosa, and it seems that it will be possible for the deal to be priced today as investors sentiment is positive due to his focus on corruption.

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Marcus Sava Marcus Sava
Very interesting Althea! I suppose the issuing eurobonds are in USD, isn't?
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Althea Spinozzi Althea Spinozzi
Hi Marcus, yes the new eurobonds are in USD - SA was able to place them yesterday the $Benchmark 12y at 5.875% and 30y 6.30% vs IPT 6% and 6.375% respectively. Very surprised SA was able to place them at tighter price, as there is clearly widespread weakness in the global bond market.
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ambro ambro
Althea, do you think that SA is one of these countries whose default risk increases with USD appreciation?

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