The Johannesburg Stock Exchange in Sandton.
There is strong and growing demand from international investors for bonds in South Africa with some analysts even seeing it as a relatively safe haven during the eurozone’s debt crisis.
South Africa’s market is liquid, offers an established yield curve and high returns, traders say, with the added attraction of being promoted into a major bond index recently.
The 20-year benchmark bond is now offering 8.8% yield compared to its Mexico counterpart at 7%.
The five new bonds were first announced in the February budget but the treasury has kept quiet since then and has taken longer than expected to come out with the issues.
Monale Ratsoma, the treasury’s head of borrowing, said the bonds could come any day now as the department was only waiting for the completion of listing paperwork at the Johannesburg Stock Exchange (JSE).
“We are looking to list as soon as we can,” Ratsoma said. “We have to lodge papers with the JSE. By the end of the week we could have listed if all goes well.”
Two of the five new bonds are fixed income issues due in 2023 and 2048. Three inflation-linked bonds due in 2025, 2038 and 2051 will also be issued.
Eagerly awaited
Analysts are split over which of the two fixed income assets is most eagerly awaited. While the 11-year plugs an existing gap in the yield curve around the 10-year maturity, the 36-year bond extends a curve that currently stops at 29 years.
“Once a bond is out there, you might find fund managers can better match their liabilities by buying the new bond versus the existing bonds,” said Leon Myburgh, sub-Saharan Africa strategist at Citi, adding that the 2048 was likely to attract more interest, falling beyond the tail of the curve.
“From a pricing point of view, there just simply aren’t other assets in that area,” he said.
Offshore investors excited at South Africa’s imminent inclusion in the influential Citi World Government Bond Index may pile into the 11-year bond – the closest South Africa will have to a 10-year benchmark.
The 2048 and 2050 inflation bond will be split into three maturities, putting them in line to be used as funding stock at government auctions.
Local dealers often complain of being choked by the amount of stock coming into the market weekly, with state-owned companies issuing alongside the government.
Last week, the treasury released a switch auction schedule that has them selling paper weekly from next week, compared with two a month at the start of the programme this year.
Debt switch
Ratsoma said the higher frequency was designed to complete the debt switch as soon as possible.
“We do not want this process to prolong. We want to get over and done with the switches as soon as we can,” he said, acknowledging that lots of concurrent auctions were disruptive.
Government exchanges shortly maturing bonds into longer-dated paper to smooth out the refinancing risk.
The announced calendar runs to November but treasury is looking to have managed the R34-billion target on the R201 and R15-billion on the R206 – both of which mature next year – before then.
“If the market is there for us to do a substantial amount I tell you we will not hesitate. That’s what we would ideally like to achieve,” Ratsoma said.
Investors say part of the nervousness around the switch programme is a clause that lets treasury switch any amount or none at all, leading to jittery trade before the Thursday sales. – Reuters