Inflows Surge as South African Government Bonds Find New Favour

JOHANNESBURG (Capital Markets in Africa) – South African government bonds are finding favour with foreign investors, extending a rally even as concerns over the effect of the coronavirus continue to roil global markets.

Non-residents bought the most of the debt on a net basis in 16 months on Tuesday, and the order book at Treasury’s weekly auction was the strongest in five weeks. Inflows this year stand at 7 billion rand ($470 million), according to JSE Ltd. data, a turnaround from 2019, when foreign investors dumped a net 21.6 billion rand of the government bonds.

The move into South Africa debt interrupts a short-lived sell-off that began at the beginning of the year amid perceptions that Africa’s most industrialized economy may lose its investment-grade status from Moody’s Investors Service as soon as March, while the state-owned electricity company struggles to provide uninterrupted power to Africa’s most-industrialized economy.

Yields on benchmark 2030 bonds have dropped five out of the past six sessions to trade at levels last seen in October. That’s despite Eskom Holdings SOC Ltd. Implementing rotational blackouts this week to prevent a total shutdown of the grid. South African labor, business, and government representatives are scheduled to meet to discuss proposals by the country’s biggest labor-union federation on how to reduce the company’s debt.

The primary dealers that buy bonds directly from the government placed orders for 13.9 billion rand of securities at the sale on Tuesday, about 3.1 times the 4.53 billion rand on sale. That was the highest bid-to-cover ratio since Dec. 10, according to Bloomberg’s calculations based on Reserve Bank data.

Source: Bloomberg Business News