June 20 (Bloomberg) -- South African government bond yields rose to the highest in more than a month before tomorrow’s debt auction as concern Greece won’t avoid a debt default sapped demand for higher-yielding assets.
The Pretoria-based Reserve Bank is offering 2.1 billion rand ($308.6 million) of bonds maturing in 2018 and 2021 at its weekly auction, according to bank data on Bloomberg. The secondary market yield on the 2021 bonds rose five basis points, or 0.05 percent, to 8.48 percent at 2:01 p.m. in Johannesburg, the highest on a closing basis in more than a month and 20 basis points higher than at the previous auction of 10-year debt on May 31.
Foreign investors sold a net 1.5 billion rand of South African bonds in the week ended June 17, after buying 6.8 billion rand of debt the week before, according to JSE Ltd. data. The premium investors demand to buy South African 10-year debt over U.S. Treasuries has widened about 26 basis points in the past week to 5.57 percentage points.
“The Greek debt debacle will continue to be closely watched, with waning sentiment over the past week having driven local yields weaker as foreign accounts have looked to de- risk,” Rand Merchant Bank analysts led by Theuns de Wet said in a research note.
The secondary market yield on the 2018 bonds climbed one basis point to 8.33 percent, the highest since May 18.
Greek Prime Minister George Papandreou is battling a confidence motion in parliament this week as he tries to secure parliamentary approval of a 78 billion-euro ($111 billion) package of budget cuts to ensure the payment of a fifth loan under last year’s 110 billion-euro bailout. Euro-area finance ministers pushed Greece to pass laws to cut the deficit and sell state assets, and left open whether the country will get the full 12 billion euros promised for next month.
South African government debt has returned 3.8 percent this quarter, according to Bank of America Merrill Lynch data, as investors bet the central bank won’t raise borrowing costs to counter inflation driven by rising fuel, food and electricity prices. The country’s central bank left its benchmark rate at 5.5 percent on May 12.
“The recent sell-off need not be the start of a new trend as much as it may reflect a necessary breather after a fairly strong bull run,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in a research note. “All bets would however be off if the Greek prime minister does not successfully secure a vote of confidence in parliament on Tuesday.”
The Pretoria-based statistics agency may report on Wednesday that consumer inflation rose to 4.3 percent in May, from 4.2 percent the month before, according to the median estimate of 23 analysts in a Bloomberg survey.
Tomorrow’s bond auction starts at 11 a.m. in Johannesburg and the results will be announced at about thirty minutes later, the Reserve Bank said.
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