Strong foreign demand for new SA bonds
Attracted bids of US$7.1 billion
The South African government views the success of the transaction as an expression of continued investor confidence.
There has been strong foreign appetite for the R44 billion in new dollar-denominated bonds placed by government this week. The bonds attracted bids of US$7.1 billion, more than double the amount of bonds on offer.
Treasury says a range of investors, including fund managers, pension and hedge funds as well as banks from the UK, North America, Europe, Asia and Africa showed interest.
“The strong demand by foreign investors is indicative of South Africa’s improved terms-of-trade outlook, an improved fiscal position, as well as its position as a relative ‘safe-haven’ in this environment when compared to other emerging market economies such as Turkey and Russia,” says Yunus January, portfolio manager at Futuregrowth.
The 10-year bond coupon rate of 5.875% represents a spread of 309 basis points above the 10-year US Treasury. The bigger the spread above Treasury rate, the more risk is associated with the bond. When South Africa last issued US dollar bonds in 2019, government bonds were still rated as investment grade by Moody’s. All three of the large credit rating agencies now rate South Africa as “junk”, or below investment grade.
Rating
Still, the spread on the latest bonds is similar to the spread at issue for the 10-year US dollar bond that was issued in 2019, says Carmen Nel, an economist and macro-strategist at Matrix Fund Managers.
The spread is also broadly in line with that of Brazil, South Africa’s “rating peer”, which has a similar credit rating and is also a commodity producer, says Nel.
The Brazilian 10-year US dollar bond is trading at around 280bp above the US 10-year yield.
January says that South Africa’s sovereign risk premium has come down materially since the start of the Russia-Ukraine conflict and the recent upgrade in South Africa’s outlook from “negative” to “stable” by Moody’s would have also supported spread compression.
Nel says Moody’s decision indicates that the ratings are set to stabilise, a positive development. “Previously there was elevated risk that South Africa would continue to experience credit rating downgrades.”
In a statement, Treasury said the final yields reflect a tightening of 37.5 basis points and 45 basis points from the initial price - indicating that due to solid investor demand, government will pay less in interest than expected.
“The South African government views the success of the transaction as an expression of continued investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management,” it added.
- Fin24
Treasury says a range of investors, including fund managers, pension and hedge funds as well as banks from the UK, North America, Europe, Asia and Africa showed interest.
“The strong demand by foreign investors is indicative of South Africa’s improved terms-of-trade outlook, an improved fiscal position, as well as its position as a relative ‘safe-haven’ in this environment when compared to other emerging market economies such as Turkey and Russia,” says Yunus January, portfolio manager at Futuregrowth.
The 10-year bond coupon rate of 5.875% represents a spread of 309 basis points above the 10-year US Treasury. The bigger the spread above Treasury rate, the more risk is associated with the bond. When South Africa last issued US dollar bonds in 2019, government bonds were still rated as investment grade by Moody’s. All three of the large credit rating agencies now rate South Africa as “junk”, or below investment grade.
Rating
Still, the spread on the latest bonds is similar to the spread at issue for the 10-year US dollar bond that was issued in 2019, says Carmen Nel, an economist and macro-strategist at Matrix Fund Managers.
The spread is also broadly in line with that of Brazil, South Africa’s “rating peer”, which has a similar credit rating and is also a commodity producer, says Nel.
The Brazilian 10-year US dollar bond is trading at around 280bp above the US 10-year yield.
January says that South Africa’s sovereign risk premium has come down materially since the start of the Russia-Ukraine conflict and the recent upgrade in South Africa’s outlook from “negative” to “stable” by Moody’s would have also supported spread compression.
Nel says Moody’s decision indicates that the ratings are set to stabilise, a positive development. “Previously there was elevated risk that South Africa would continue to experience credit rating downgrades.”
In a statement, Treasury said the final yields reflect a tightening of 37.5 basis points and 45 basis points from the initial price - indicating that due to solid investor demand, government will pay less in interest than expected.
“The South African government views the success of the transaction as an expression of continued investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management,” it added.
- Fin24
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