Africa-Press – South-Africa. An auction of South African government bonds attracted the strongest demand in almost three months as investors bet the country’s improving outlook and a lower inflation target will boost returns on fixed-income securities.
Primary dealers placed orders for R17.86 billion for the R3.75 billion of securities on offer at the weekly Treasury auction. That compares with R12.59 billion of bids at last week’s sale, and is the strongest demand since the auction of March 11.
The adoption of a budget after months of wrangling on tax increases and spending cuts, together with easing tensions in the coalition government, has boosted confidence that South Africa will meet its fiscal targets and curb government debt.
Investor sentiment also improved on signs that the central bank is working with the Treasury to lower its inflation target.
A rate cut last week by the South African Reserve Bank added impetus to a bond rally that’s seen yields on benchmark government securities falling to the lowest level in more than six months.
Governor Lesetja Kganyago argued for an inflation target that’s lower than the current 3% to 6% range, saying it will lead to interest rate reductions and faster economic growth in the long term.
“The final version of the budget provided some reassurance about the credibility of fiscal policy,” said Thierry Larose, a portfolio manager at Vontobel Asset Management in Zurich. “The resolution of the budget saga, coupled with the fundamental change of tone from a traditionally conservative SARB, has made us more constructive despite some initial caution during the political turmoil.”
The yield on South Africa’s 2035 bonds fell five basis points to 10.16% by 12:32 p.m. in Johannesburg, near the lowest on a closing basis since November.
A lower inflation target and revised borrowing strategy could save the government up to R870 billion in debt-service costs, according to a report by the central bank.
The SARB and the Treasury have been in talks about a new framework since February 2024, with discussions “ongoing.”
Meanwhile, South Africa’s economy beat expectations to expand in the first three months of the year as transport and farming boosted growth, data showed Tuesday.
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