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SA to join Citi world bond index

Jun 11 2012 18:12 Reuters

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Johannesburg - South Africa will join Citi's influential World Government Bond Index (WGBI) from October, the US bank said on Monday, conferring an important seal of approval on the continent's biggest economy after recent credit outlook downgrades.

Citi said 11 of South Africa's government bonds worth $83bn had met the WGBI's entry requirements for three straight months, allowing it to accede to the index later this year.

When South Africa's possible inclusion was first announced in April, bonds rallied sharply due to expectations of a flood of cash from index-tracking funds that would need to load up on SA debt.

At the time, estimations of the inflows ranged from $5bn to $9bn. Confirmation of South Africa's accession had been widely expected.

"There are 11 South African government bonds eligible for the WGBI. The market value of these bonds is $83bn, which represents a pro forma market weight of 0.41% in the WGBI," Citi said in a statement.

The WGBI currently has 22 countries, with Malaysia, Poland and Mexico the only emerging markets to be included. South Africa will be the first African sovereign represented.

Pretoria applauded Citi's announcement in April as an endorsement of its long-term spending plans in the face of concerns from rating agencies about its ability to keep its budget deficit in check.

The government is forecasting a deficit of 4.6% for this year, but says it should be able to bring that down to close to 3% by 2014 as economic growth continues to pick up from a 2009 recession. 
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