JOHANNESBURG Oct 1 (Reuters) – South Africa’s government
bonds sold off sharply on Monday and yields jumped as demand
from foreign accounts after a much anticipated-debut on
Citigroup’s World Government Bond Index did not live up to
market expectations.
The rand also turned weaker against the dollar, with
sentiment towards South African assets still wobbly after last
week’s sovereign credit downgrade by Moody’s.
Data released last Friday which showed government spending
is far outpacing revenue in the current fiscal year, suggesting
a larger-than expected budget deficit, also weighed on local
bonds as players priced in more debt issuance than earlier
expected.
The yield on the three-year benchmark climbed
seven basis points to 5.45 percent and that for the 14-year
issue, which is also heavily traded on the secondary market,
jumped 14 basis points to close at 7.57 percent.
“It is clear from the latest government finance figures that
the income is not picking up as expected so we may see a bigger
deficit in the medium-term budget,” said Marten Banninga, head
of bond trading at World Wide Capital Securities.
Finance Minister Pravin Gordhan will present the medium-term
budget to parliament later this month.
“Also the hype about WGBI last week has certainly not
materialised in the way that people anticipated. If you look at
the trading on Friday, foreigners were buyers but people were
expecting far bigger numbers,” Banninga added.
“There was a lot of buying by (local) banks prior to that in
anticipation of a take-up by the foreign community which didn’t
materialise and we saw the selling starting as people realised
that the buyers are not there yet.”
Twelve South African government bonds on Monday officially
joined others from 22 other countries listed on the WGBI tracked
by an estimated $2 trillion worth of funds.
Market watchers reckon demand from funds that track the
index has accounted for much of the nearly 71 billion rand worth
of local bonds purchased by foreign accounts so far this year.
Like bonds, the rand also struggled on Monday,
reversing earlier gains to trade at 8.3699 to the greenback by
1606 GMT, down 0.66 percent from Friday’s close in New York.
(Reporting by Stella Mapenzauswa; editing by Stephen Nisbet)
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