South Africa issued the bonds due in 2025 to yield 6%, or 3.15% above US Treasuries on Monday. It originally planned to sell $1.5-billion of the debt to yield as much as 3.3 percentage points above Treasuries, according to a person familiar with the offering who asked not to be identified because he’s not allowed to speak publicly.
South Africa tapped the market after investors pulled $22.1-billion from emerging-market bond funds since the end of April amid speculation the US will curb stimulus. The withdrawals are almost five times the amount taken out of US corporate debt, according to EPFR Global.
"Despite the headline risk, there’s money to put to work in emerging markets," said Luz Padilla, manager of the $664-million DoubleLine Emerging Markets Fixed Income Fund.
Russia, which shares South Africa’s BBB rating from Standard & Poor’s, sold $6.96-billion of euro and dollar bonds due in five, seven, 10 and 30 years yesterday. It issued 10-year securities to yield 220 basis points over Treasuries.
The 6% that South Africa agreed to pay yesterday is up from 4.665%, or 270 basis points above US Treasuries, when it sold notes due in 2024 in January 2012.
South Africa’s central bank forecasts the nation’s economy will grow 2% this year after expanding 2.58% in 2012 as labor unrest in mines shaves 0.3% off growth, President Jacob Zuma said in June. The country, which has the world’s largest-known reserves of platinum and chrome and is the sixth-largest producer of gold, relies on minerals for more than 50% of its exports.
Wall Street’s biggest firms are predicting intensifying bond losses in emerging markets, where borrowing costs have already soared to the highest in more than four years versus US corporate debt, as the Federal Reserve considers curtailing record stimulus.
Borrowing costs are soaring from record lows reached in January as speculation deepens that the Fed will curtail its so-called quantitative easing as soon as this month, signaling an end to the flood of cheap money that’s propped up asset prices from India to China and Indonesia.
The exodus from developing nations began after Fed chairperson Ben Bernanke told Congress on May 22 that the central bank could scale back the pace of its $85-billion of purchases of mortgage bonds and Treasuries if the US economy showed sustained improvement. – Bloomberg