Bloomberg News

S. Africa Gets Lowest Auction Demand in Two Months on Greece

June 17, 2011

(Updates with yields in second paragraph.)

June 17 (Bloomberg) -- South Africa received the smallest amount of orders in more than two months at a sale of inflation- linked bonds as investors shunned riskier assets on concern Greece’s debt crisis will spread.

Investors submitted bids for 765 million rand ($112.4 million) of debt, the lowest demand at an auction of inflation- linked debt since April 1, according to the central bank’s data on Bloomberg. Yields rose for this first time in two month, with the rate on the 2.45 percent notes due 2033 adding 3.5 basis points, or 0.035 percentage point, to 2.535 percent, compared with the previous sale.

Foreign investors have been net sellers of 1.8 billion rand of South African bonds this week, according to JSE Ltd. data, as concern grew that a Greek debt default would spread contagion to other countries in the euro region.

“Today’s inflation-linked auction should not be looked on as a great predictor of what the market anticipates inflation will be,” Tradition Analytics researchers led by Johannesburg- based Quinten Bertenshaw said in a research note before the auction. “It will reflect generally weak demand for emerging- market and indeed South African debt assets at a time when the risks in the euro zone are massively elevated.”

The Pretoria-based Reserve Bank auctioned 555 million rand ($81.1 million) of the notes due 2033. The central bank sold 45 million rand of 2.75 percent inflation-linked bonds due 2022 at a yield of 2.54 percent, two basis points higher than at the previous auction. It didn’t allocate any 2.6 percent inflation- linked notes due 2028.

The breakeven rate, or yield difference between 10-year inflation-linked bonds and similar-maturity fixed-rate notes, an indicator of investors’ outlook for inflation, has climbed 11 basis points to 5.88 percent in the past week.

The consumer inflation rate rose to 4.2 percent in April, from 4.1 percent the previous month, the Pretoria-based statistics agency said on May 17. The rate quickened to 4.3 percent in May, according to the median estimate of nine economists in a Bloomberg survey.

--Editors: Ana Monteiro, Gavin Serkin

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

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


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