Money flooding into South African government bonds

A weekly auction of government debt on Tuesday attracted the strongest demand in four months as yields among the highest in emerging markets enticed investors flush with cash from coupon payments.

Primary dealers placed orders for R16.3 billion at the National Treasury’s sale of fixed-rate bonds, more than six times the R2.55 billion offered.

That follows similar bid-to-cover ratios at the previous two auctions, double the demand seen at the beginning of September.

South Africa’s 10-year yield climbed more than 50 basis points in the past month to above 9% amid a global bond selloff sparked by rising policy rates and elevated energy prices.

Among major emerging markets, only Mexico, Brazil, Colombia and Turkey offer higher returns.

That tempted investors looking to allocate about R17.7 billion of coupon payments received from South African government bonds in September, according to Bloomberg’s calculations.

“The auction slate was not particularly demanding from a duration perspective and given the recent selloff we expected a decent take-up with these yields,” said Tom Gale, a sales trader on Standard Bank Group Ltd.’s global markets trading desk. “Coupons continue to add liquidity.”

The overall bid-to-cover ratio of 6.3 compared with about 5.9 at last week’s sale, and was the highest since the auction of 2 June.

Debt maturing in 2037 saw the strongest demand, with orders of R7 billion for R850 million on offer.

Notes due 2033 drew orders of R4.97 billion; 2040 securities attracted bids of R4.3 billion.

The yield on the 2037 bonds declined six basis points to 9.07% in Johannesburg. The rand strengthened 0.7% to 16.53 per dollar.