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Net foreign bond buying jumps amid Gordhan removal

Apr 03 2017 17:42

Cape Town - Net foreign bond buying increased significantly to R11.45bn in a week of uncertainty, which culminated in the removal of Pravin Gordhan and Mcebisi Jonas from the finance ministry. 

Adriaan du Toit, from Citi Research said in a company note issued on Monday that foreigners piled into the bond market, as reflected in the JSE’s weekly report. 

“As local politics dominated markets last week, foreigners piled into the bond market and net foreign bond buying [was] to the tune of R11.45bn with the R186 attracting more than half of the total inflow,” Du Toit said. 

“Foreign bond buying already reached a seven-month high before politics took centre stage on Monday March 27 (when President Jacob Zuma ordered Gordhan and key National Treasury officials to return from an international investor roadshow). 

READ: Resources, gold up while banking shares continue their decline on JSE

“But the buying accelerated as some market participants seem to see this as a ‘Brazil-turnaround’ story.” 

Du Toit said real money and hedge fund accounts seem to have reacted to the cabinet reshuffle in a “mild fashion”. 

In the early hours of Friday morning, Zuma announced far-reaching changes to the Cabinet, which sent the rand into a tailspin weakening over 8% last week. 

South African banking shares lost more than R80bn in value on Friday and continued to decline on Monday, although the losses were somewhat slower.

READ: Rand rout: Seven risks to watch

“We believe real money accounts never really switched their short positions on the rand into a long stance, but there was some degree of relaxation in the way investors carried their rand risk in their overlay portfolios.” 

Fin24 earlier reported that before the recent political saga broke out, SA ten-year government bonds had rallied around 47 basis points relative to February 28 2017. 

Yields however climbed back up to 8.9% late in the month, responding to negative political headlines.

The Inflation-linked Bond Index (ILBI) dipped marginally by 0.5% for March 2017, while the FTSE/JSE Listed Property Index performed slightly better, ending the month marginally in the black.

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