South Africa Bonds Jump as Treasury Surprises With Auction Cut

(Bloomberg) -- South African bond yields fell by the most in a month and the rand strengthened after the National Treasury said it will reduce the amount of debt sold at weekly auctions as the government’s borrowing requirement declines.

While the government signaled last month it would curb bond issuance, the timing and size of the move caught traders by surprise. It was the latest tailwind for the country’s debt, which has rallied since Cyril Ramaphosa was elected as leader of the ruling African National Congress in December. After taking office as president last month, the government has vowed to shrink the fiscal deficit and control borrowing.

The next hurdle for the market to overcome will be a credit assessment by Moody’s Investors Service scheduled for Friday. Market consensus is for the agency to keep South Africa’s sovereign rating investment-grade.

South Africa Bonds Jump as Treasury Surprises With Auction Cut

The amount of fixed-rate bonds offered at weekly sales will be cut to 2.4 billion rand ($201 million), from 3.3 billion rand, as of March 27, the Treasury said in a stock exchange statement Tuesday. The amount of inflation-linked securities on auction will be decreased to 600 million rand a week, from 900 million rand, as of April 6.

“The reduction in supply was expected; what wasn’t was the timing,” said Alvin Chawasema, a fixed-income trader at Sasfin Securities Ltd. in Johannesburg. “We had expected the volumes to be 2.6 billion rand on vanillas and 650 million on the inflation-linked bonds,” with both reductions coming into effect in April, he said. “The last switch auction reduced their funding requirements.”

The Treasury received bids of about 13 billion rand for a 3.3-billion sale on Tuesday, about 3.9 times the amount on offer.

Yields on government bonds due December 2026 dropped nine basis points to 8.08 percent by 3:13 p.m. in Johannesburg, the most since Feb. 21 on a closing basis. The rand led currency gains versus the dollar, climbing 0.4 percent to 11.9687.

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