An ongoing scandal involving President Cyril Ramaphosa is taking its toll on the bond market.
The government offered to sell 3.9 billion rand of securities at its weekly debt auction on Tuesday, with yields on its benchmark notes exceeding 11%, and traders placed orders for 7 billion rand, according to the central bank. That’s the lowest relative level of interest they’ve shown since October 2021, data compiled by Bloomberg shows.
“Currently high bond yields now include a high risk premium, which is valid given the much higher fiscal and political risk in South Africa,” said Rashaad Tayob, head of fixed income at South Africa-based Foord Asset Management. Cape. The developing situation means that this premium “should remain elevated and potentially increase,” he said.
Ramaphosa’s political future was thrown into question on November 30 when an advisory panel led by Sandile Ngcobo, a former chief justice, issued a scathing assessment of the president’s handling of the theft of at least $580,000 from his game farm in 2020. He disputed Ramaphosa’s claims. that the cash came from the sale of 20 buffaloes to a Sudanese citizen, that his farm manager had hidden it in a sofa, and that he had done nothing wrong.
The president is challenging the report in court and has been assured by the ruling African National Congress that its lawmakers will reject the panel’s report when the matter comes up in parliament on December 13. But the risk remains that some party members will break ranks. and siding with the opposition in voting to start impeachment proceedings, a process that could take months.
The ANC’s integrity committee can also rule that the president discredited the party and recommend that he step aside, though the final decision is likely to be made by top party leaders.
Since the panel report was published, South African local currency bonds have performed the worst among 25 emerging markets tracked by Bloomberg by a wide margin, with 10-year notes bearing the brunt of the sell-off. . Yields on those securities are trading above 11% and are 150 basis points higher than their five-year average.
Non-residents have been net sellers of local currency securities in three of the four sessions since the explosive findings were made public, settled trade data reported by stock trader JSE shows. Meanwhile, the rand’s implied volatility jumped to its highest levels since November 2020, while the currency is 2% weaker against the dollar than it was on the day the news broke.
On Monday, Fitch Ratings warned that the scandal added risk to South Africa’s political outlook, although the general continuation of politics remains the most likely scenario.
READ | Fitch says Ramaphosa crisis is a risk, but SA policies must stay in place
Despite the scandal, Ramaphosa is expected to win a second term as ANC leader in his Dec. 16-20 conference election, after winning the vast majority of nominations for the post. That would put him on track to secure a second term as the nation’s president in 2024.
Tayob said victory for the incumbent is not guaranteed and he can expect a strong challenge to his leadership.
“Even if the president survives into next year, he has been permanently hurt by the information that came out in the report,” Tayob said. “Much of his political capital will be spent dealing with investigations and we see a continued stalemate on economic policy.”
