South African Bonds Soar as Central Bank Signals Debt-Buying

JOHANNESBURG (Capital Markets in Africa) — South African bonds soared, with the yield on the most-traded government securities falling by the most in 19 years, after the country’s central bank said it will start buying debt in the secondary market in an unprecedented intervention to boost liquidity.

The move came as government yields reached record highs even after the South African Reserve Bank cut its policy rate last week by the most in a decade and injected more money into the system via repurchase auctions. Stocks and the rand also gained.

“They are trying to help the primary dealer market with liquidity, given the bond market has been decimated over the past couple of days,” said Warrick Butler, a Johannesburg-based trader at Standard Bank Group Ltd. “This is quantitative easing.”

The yield on rand-denominated 2026 government bonds plunged 112 basis points to 10.23%, the biggest one-day move since 2002, while those on 10-year bonds fell 116 basis points to 11.27%. The rand strengthened 1.1% to 17.3379 per U.S. dollar by 11 a.m. in Johannesburg. The nation’s benchmark stock index surged 7.2%.

Bond purchases will be conducted across the yield curve, the Pretoria-based SARB said in a statement on its website on Wednesday, without disclosing the size or duration of the transactions.

“The purchases will take place at our discretion until liquidity conditions normalize,” said Samantha Springfield, acting senior manager for market operations and analysis at the central bank. The Reserve Bank has been active as a market-maker in the bond market in the past, but has never purchased the debt for monetary-policy purposes before, she said.

Liquidity measures in addition to the bond purchases include:
Main refinancing operations to be offered for periods of seven days to longer-term maturities of up to 12 months.

On March 25, the SARB will offer the normal seven-day weekly main refinancing operations at 10 a.m., as well as a refinancing operation with a term of three months at 1 p.m.

The three-month refinancing operation will be conducted on the same basis as the current weekly main refinancing operations.

The interest rate applicable for the three-month refinancing operations will be the repurchase rate plus 30 basis points.

Source: Bloomberg Business News