South Africa’s dollar-denominated sovereign bonds jumped and yields of the local 10-year benchmark eased on Monday after Pretoria escaped a relegation to “junk” status by ratings agency Moody’s in the wake of last week’s bleak mid-term budget.
The rand saw its largest daily fall in more than a year on Wednesday, after Finance Minister Tito Mboweni’s medium-term budget statement slashed this year’s growth forecast to 0.5% and showed government debt racing to more than 70% of gross domestic product (GDP) by 2023.
The rand was still around 1% weaker against the dollar on Monday than it had been before the medium-term budget, and benchmark local government debt yields were still some 20 basis points higher.
Local bond yields eased across the curve with the 10-year benchmark yield slipping to 8.4%, a 18 basis points decline from the Friday close, according to Refinitiv data.
Meanwhile, longer-dated Eurobonds bonds enjoyed the biggest gains with the 2041 issue adding as much as 1.5 cents in the dollar to trade at 109.028 cents, Tradeweb data showed.
That was the largest daily gain in 4-1/2 months.
Late on Friday, Moody’s left South Africa on the brink of “junk” status after it revised the outlook on the country’s last investment-grade credit rating to “negative,” piling pressure on President Cyril Ramaphosa to quicken the pace of economic reform.
Part of the reason for Monday’s rally was that South Africa escaped with the best of the three possible outcomes from the Moody’s review.
Some traders had bet that the rating would be downgraded, while others thought Moody’s would place South Africa on review, a bleaker assessment than a negative outlook which signals a downgrade could be imminent.
Other reasons for the rally were healthy appetite for high-yielding assets in emerging markets given optimism over the US-China trade war and a steep sell-off in South African assets last week.