Johannesburg - South Africa may issue five new bonds as
early as this week, helping to plug a 10-year benchmark gap and extend the
government yield curve by a further seven years, a top Treasury official said
There is strong and growing demand from international
investors for bonds in Africa’s largest economy and biggest debt market, with
some analysts even seeing it as a relatively safe haven during the eurozone’s
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.
However, 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.
“We are looking to list as soon as we can,” Ratsoma told
“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-liked bonds due in 2025, 2038 and 2051 will also
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
“From a pricing point of view, there just simply aren’t
other assets in that area,” he said.
However, 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
The 2048 and RI2050 inflation bond will be split into three
maturities, putting them in line to be used as funding stock at government
Too many 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.
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 R34bn target on the R201 and R15bn 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,”
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.