Bloomberg News

South Africa Bond Yields Fall to 7-Month Low at Debt Auction

June 07, 2011

June 7 (Bloomberg) -- South African government borrowing costs fell to a seven-month low at a weekly auction as investors raised bets the central bank won’t increase rates soon to slow price advances in Africa’s biggest economy.

The Pretoria-based Reserve Bank sold 1.4 billion rand ($207 million) of bonds maturing in 2026 at an average yield of 8.4 percent, it said on its Bloomberg page. The yield was the lowest since the auction of Nov. 2 and 27 basis points, or 0.27 percentage point, lower than at the previous auction of the debt on May 3. Investors bid for 3.3 times the amount offered.

Forward-rate agreements effective in November, which investors use to lock in interest rates, have dropped 19 basis points since May 13, the day after the central bank left its benchmark rate unchanged at 5.5 percent, even as it revised its inflation estimates higher. Inflation was driven by fuel and food prices, not consumer demand, Deputy Governor Daniel Mminele said on May 27.

“The market continues to bet against pre-emptive hikes,” Rand Merchant Bank analysts led by Theuns de Wet said in a research note.

The central bank also sold 700 million rand of notes due in 2020 at an average yield of 8.19 percent, the lowest since Nov. 9 and 11 basis points lower than at the previous auction on May 24. Investors bid for 1.8 times the amount on offer.

The extra yield investors expect to buy the South African 15-year debt over U.S. treasuries of similar maturity has narrowed 27 basis points since May 17, when the Pretoria-based statistics agency reported consumer inflation was 4.2 percent in April, less than the 4.4 percent median estimate by economists. The central bank’s Monetary Policy Committee on May 12 held its benchmark interest rate at 5.5 percent, a 30-year low.

--Editors: Ana Monteiro, Stephen Kirkland

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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