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Muted reaction to Fitch downgrade

Jan 11 2013 09:57 I-Net Bridge

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Johannesburg - The South African bond market showed a muted reaction on Friday morning to Fitch’s ratings downgrade of SA‚ announced late on Thursday.

Fitch cut SA’s sovereign credit rating by one notch to BBB.

Standard & Poor’s (S&P) and Moody’s both downgraded South Africa in late September and early October 2012.

“The Fitch downgrade was expected as it was clear that it would match the other two ratings agencies. That is why there has been only a muted reaction this morning‚” a local bond dealer said.

At 8:45 the benchmark R186 was trading at 7.135% from Thursday’s close of 7.090% and Wednesday’s close of 7.100%. The R157 was trading at 5.350% from 5.310% at its previous close and the R207 was bid at 6.205% and offered at 6.175% from its previous close of 6.150%.

The rand was last bid at R8.6701/$ from R8.6566 at Thursday’s close and R8.5999 at Wednesday’s close.

Absa Capital said in its morning report that Fitch became the third of the major rating agencies to cut SA’s sovereign rating on Thursday‚ having placed the country on negative outlook earlier.

“Like the downgrades from Moody’s (late September) and S&P (mid-October)‚ Fitch’s move comes as the economic outlook for the country looks more challenging‚ the current account looks wider and the labour unrest sparked post-Marikana highlights the deep socioeconomic challenges faced by SA nearly 20 years following the introduction of democracy‚” the bank said.

“Slower economic growth – delivered in part by the continuing difficult global environment‚ but also as SA struggles for competitiveness – cast a shadow over public finances and on employment and equality. Against this‚ SA continues to score well on governance‚ on the soundness of the banking system (and the financial system more generally) and on the make-up of its public debt profile‚” it said.

Foreigners were net buyers of R1.355bn of South African bonds including repo transactions on Thursday after net sales of R872.017m of local bonds on Wednesday‚ data from the JSE show.

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moody's  |  standard and poor's  |  fitch ratings  |  bonds  |  markets
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