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Pretoria – Bond yields have made a recovery following a decline which was sparked by Nenegate last year and subsequently various economy-related factors earlier this year, according to South African Reserve Bank (Sarb).
Sarb released its final quarterly bulletin on Friday. The report indicated that the domestic five-year bond yield declined as much as 194 basis points, from a “high of 9.86%” on 11 December 2015.
This was the day before former Finance Minister Nhlanhla Nene was fired and replaced by the current Minister of Cooperative Governance and Traditional Affairs David van Rooyen. President Jacob Zuma was then forced by his party to rehire Pravin Gordhan as minister of finance.
Bond yields trended downwards during the first half of 2016 until mid-August, said Sarb.
Other factors contributing to the trend include the appreciation of the exchange rate, lower economic growth projections, inflation outcomes that were lower than expected, and foreign demand for domestic bonds.
Yields have since been volatile owing to the rand depreciation which developed due to the political uncertainty surrounding Finance Minister Pravin Gordhan, as well as the strengthening of the US dollar following the presidential elections.
The bond yield dropped to 7.92% in August but as at December 5 this year it had recovered to 8.49%.
“The South African government bonds, since last year, when confidence was shaken, there has been higher levels of nominal bond yields,” said head of research Dr Johan van den Heever, who presented the bulletin.
The political uncertainty in August amid local government elections also contributed to volatility in equity markets.
Expectations of a possible rate hike by the US Federal Reserve Bank (Fed) rate were also a contributing factor.
Van den Heever; however, explained that JSE share prices have been fluctuating a lot since mid-2014.
However the fluctuation has been “sideways”.
“There is a lot of cross correlation between our exchange and foreign exchanges. A lot of our big shares are dual listed, with some having primary listing in London and secondary listing in South Africa,” he said.
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