* Local bonds to have 0.41 percent weight on index
* Govt bonds gain after news
(Adds market reaction, trader comments, background)
JOHANNESBURG, June 11 (Reuters) - South Africa will join
Citi's influential World Government Bond Index (WGBI) from
October, the U.S. bank said on Monday, conferring an important
seal of approval on the continent's biggest economy after recent
credit outlook downgrades.
Inclusion in the index should help Pretoria's borrowing
plans for its multi-billion dollar infrastructure drive it says
will fuel economic growth after a 2009 recession, helping narrow
the budget deficit to about 3 percent of GDP by 2014 from 4.6
percent this year.
Citi said 11 of South Africa's government bonds worth $83
billion had met the WGBI's entry requirements for three straight
months, allowing them to accede to the index later this year.
"The market value of these bonds ... represents a pro forma
market weight of 0.41 percent in the WGBI," Citi said in a
statement.
Government bonds briefly extended gains on the news, which
was widely expected after the initial announcement on the
possible inclusion pushed yields down as much as 28 basis points
in April.
Yields on the benchmark three-year and 14-year
bonds initially extended losses on the day to 8.5
basis points each before edging higher.
The 2015 paper was last at 6.23 percent, down 3.5 basis
points on the day, while that for the 2026 issue was just half a
basis point lower at 8.3 percent.
In April, analysts said the inclusion could trigger inflows
of up to $9 billion as funds that track the index load up on
South African debt.
"A lot of these guys have already got exposure, so it's hard
to say what the new flows are going to be, but $6 billion to $9
billion is a fair range, I would say," a Johannesburg bond
trader said.
"The whole curve shifted about 6 points on the news but it's
gone quiet since then."
The news should give President Jacob Zuma's government cause
to cheer after it was stung by Moody's, Fitch and SP's
downgrading of South Africa's credit rating outlook to negative
from stable over concerns about the predictability of policy.
"The inclusion will, without doubt, enhance South Africa's
profile in the eyes of investors, both internationally and
locally," the Treasury said in a statement.
SOUTH AFRICAN GOVERNMENT BONDS TO BE INCLUDED IN WGBI
Bond Maturity Coupon % Latest yield%
R206 Jan 15 2014 7.5 5.3
R201 Dec 21 2014 8.75 5.37
R157 Sep 15 2015 13.5 6.27
R203 Sep 15 2017 8.25 6.865
R204 Dec 21 2018 8.0 7.2
R207 Jan 15 2020 7.25 7.2
R208 Mar 31 2021 6.75 7.64
R186 Dec 21 2026 10.5 8.315
R213 Feb 28 2031 8.0 8.775
R209 Mar 31 2036 6.25 8.895
R214 Feb 28 2041 6.5 8.93
(Reporting by Stella Mapenzauswa)
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