|
Related Topics |
|
We take a look at the bond auction results for a particular South African government bond, the R2048 (which basically matures in around 30 years). We will take a look at the value of these bonds offered by the South African government in January 2018 and again in November 2018 and investigate whether demand for these are in fact declining.
|
|
Demand for SA bonds declining and "risk premium" increasing?
Based on South African bond auction results as published by the National Treasury, it looks like the demand for South African bonds are declining while the clearing yield is rising at the same time. The gap between the bond coupon rate and the clearing yield has increased over 2018, and this while less bonds were demanded from the South African government based on the decline in the bid to cover ratio. While bonds issued were oversubscribed, the size of such over subscription declined substantially which tells us the demand for SA government bonds are on the decline and the rising clearing yield shows bond buyers wants to be compensated more for the risk taken by investing in long term SA government bonds.
|
R2048 bond (Coupon: 8.75%) auction at the end of January 2018
|
R2048 bond (Coupon: 8.75%) auction at the end of November 2018
|
So in January 2018 the SA government offered R850 million in the R2048 bonds. The clearing yield came in at 9.58% (note the interest rate offered by government on this is 8.75%. The bonds were almost 3 times (Bid to cover of2.96) over subscribed (basically investors and buyers of these bonds wanted R2.52 billion yet government only offered R850 million). So it signaled healthy demand for these bonds.
Now lets look at November 2018 auction numbers (for the same bond). Government offered R950 million worth of these bonds. The final clearing yield came in at 9.92% (up on the 9.58% clearing yield of January 2018). And total bonds wanted by investors in SA government bonds came in at R1.745 billion (down from the R2.52 billion in January). This time round instead of almost being 3 times over subscribed the bid to cover ratio came in at 1.84 (so less than double over subscribed), yet in January it was almost triple over subscribed.
So less in bonds were requested from buyers in November 2018 compared to January 2018, yet government offered R100 million more, and the final clearing yield increased, showing investors wanted a greater yield to compensate for risk. So basically SA incorporated risk premium increased during 2018, a sign that investors are becoming weary of South Africa (probably due to elections coming up in 2019 and the political risks the country face).
Now lets look at November 2018 auction numbers (for the same bond). Government offered R950 million worth of these bonds. The final clearing yield came in at 9.92% (up on the 9.58% clearing yield of January 2018). And total bonds wanted by investors in SA government bonds came in at R1.745 billion (down from the R2.52 billion in January). This time round instead of almost being 3 times over subscribed the bid to cover ratio came in at 1.84 (so less than double over subscribed), yet in January it was almost triple over subscribed.
So less in bonds were requested from buyers in November 2018 compared to January 2018, yet government offered R100 million more, and the final clearing yield increased, showing investors wanted a greater yield to compensate for risk. So basically SA incorporated risk premium increased during 2018, a sign that investors are becoming weary of South Africa (probably due to elections coming up in 2019 and the political risks the country face).