Foreigners dumping South African bonds

RMB bond trader Michelle Wohlberg said international demand for South African bonds is disappearing because of negative sentiment around the country.

Speaking to Business Day TV, Wohlberg said South African bonds offer good value, attracting some interest from local real-money accounts.

However, there has not been massive buying, causing local bonds to trade weaker than previously and creating a negative wave.

“Whenever there is a negative political story or intensified load-shedding, it removes the potential of positive news to give us a bond rally,” she said.

Commenting on international investors, Wohlberg said they have not given up completely on South Africa.

However, given all the negative headlines and the recent FATF grey listing, South Africa is becoming less and less tradeable from an international perspective.

“We need our geopolitical situation to die down so that we can encourage foreigners to start buying our bonds again,” she said.

Her comments followed the South African Reserve Bank’s (SARB’s) concerns about capital outflows and declining market depth and liquidity in South Africa.

The SARB listed these factors as additional risks to the country’s financial stability in its latest Financial Stability Review (FSR).

It said a sustained decrease in the value of South African government bonds (SAGBs) held by non-residents causes greater concentration within the domestic financial system.

“The orderly functioning of the government bond market can be disrupted, potentially requiring repeated episodes of support by authorities,” the report states.

It also warned of a less diversified capital markets ecosystem, which reduces the financial system’s ability to absorb systemic shocks.

There is also a risk of a decrease in the exchange value of the rand if foreign investor appetite wanes and commodity prices decline.