Johannesburg - South Africa is already paying a price for the current political uncertainty in the form of sharply higher bond yields. These yields supported the rand on Wednesday, but the stronger rand was bad news for the JSE where lower resources shares pulled the major indices down.
The rand traded 0.63% stronger at R14.38 to a dollar on Wednesday morning as investors buy rand to chase higher bond yields, which are currently 75 basis points higher than were available two months ago.
The resources index traded 1.16% lower by mid-morning as resources companies’ income are under pressure if the rand strengthen, as their commodities are prices in dollar.
The result was that the All-share index traded 0.31% lower at 59 333 points by mid-morning and the Top 40-index was 0.31% weaker at 53 111 points. The industrial index was also 0.10% lower and the financial index lost 0.01% .
The spotlight was this week on the bond market after a auction of long term bonds by the Treasury was three times oversubscribed, but the bonds were taken up at much higher yields than recently, which show that investors are already pricing in the currently political and financial risks, including the possibility that South-Africa’s credit ratings might be downgraded again.
Higher bond yields will also mean that government’s cost of servicing debt, which is already high, will soar even further putting more pressure on a dreadful fiscal position.
Yields for bonds due in 2031 jumped significantly, by as much as 61.5 basis points and the yield on the benchmark 10-year bond was up 1.5 basis points to 9.46%.
The big commodity shares all traded lower. BHP [JSE:BIL] was 1.96% lower at R258.72 and Anglo American [JSE:AGL] traded 2.43% softer at R270.25. Glencore [JSE:GLN] dropped 1.17% to R66.12 by mid-morning.
Impala Platinum [JSE:IMP], which dropped sharply on Tuesday and traded at one stage as much as 7% lower on the back of disappointing results, stabilised on Thursday. The share price was only 0.27% lower at R37.00 by mid-morning. Kumba [JSE:KIO], one of the high flyers on the past few weeks, dropped 1.25% to R293.04.
Naspers [JSE:NPN] was only 0.21% higher at R3 599.13 and British American Tobacco [JSE:BTI] traded 0.07% higher at R927.87. Sasol [JSE:SOL] was 1.49% softer at R430.16 as a result of the stronger rand.
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