South African sovereign yields stable after massive sell-off

Althea Spinozzi

Fixed Income Specialist, Saxo Bank Group
Althea Spinozzi joined Saxo in 2017, and serves as Fixed Income specialist. Althea produces Fixed Income research and works directly with clients in order to help them select and trade bonds. Because of her background in leveraged debt, she is particularly focused on high yield and corporate bonds with attractive risk and return.

South Africa has successfully sold 2.4bn rand (approx. 190m USD) of bonds with maturities in 2023, 2026 and 2036. The bid-to-cover ratio has been 2.81, 3.18 and 2.91 respectively, showing that investors are still positive on this emerging market even after the large sell-off we saw last week.


Foreign investors hold approximately half of outstanding South African sovereigns and last week's sell-off  shows that when US interest rates rise, investors look to find shelter in the greenback. The equivalent of 15bn rand ($1.23bn) in South African sovereigns were sold in the week ending May 11, making it the worst sell-off in seven years, and hitting a volume nearing the one seen during the 2008 financial crisis.

Figure one: South Africa bond sales to foreigners.  Source: Bloomberg.

The yield on South African sovereigns denominated in the rand remains little changed and is trading within range since the beginning of the year. At the same time, Treasury yields have been rising faster than South African government bond yields in USD have, making us think that there is room for rand and dollar SA sovereigns to suffer a correction in the next few months, as US yields continue to rise.

Figure 2: In blue South African 5-year ZAR yield, in green SA 2024 bond yield in USD; in orange 5-year Treasury yield. Source Bloomberg.

The country is marketing a 12-yr and 30-yr eurobond issuance today with initial price talk of 6% and 6.375% respectively. This will be the first eurobond to be marketed under the new president, Cyril Ramaphosa, and it seems that it will be possible for the deal to be priced today as investors sentiment is positive due to his focus on corruption.

Access both platforms from your single Saxo account.

Disclaimer

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice or a personal recommendation and does not take into consideration your objectives, financial situation and needs. Saxo Capital Markets UK Limited will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information. We assume no liability for errors, inaccuracies or omissions contained within these materials.

It is important that you understand that with investments, your capital is at risk. We offer leveraged products which carry risk and can result in losses that exceed deposits. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more here.

Additional Key Information Documents are available in our trading platform.

Saxo Capital Markets UK is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871

Please read our full disclaimer - https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer