South Africa Catches Investors Unaware with Bond Issuance Boost

(Bloomberg) -- South Africa’s government bonds reversed gains after the National Treasury said it will increase the amounts sold at weekly auctions for the second time this year to help plug a yawning budget deficit.

The move caught some investors off-guard, after Finance Minister Tito Mboweni said on Wednesday the government would tap international finance institutions and draw down cash deposits with the central bank to ease pressure on the local bond market. South Africa’s consolidated budget deficit will widen to 15.7% of gross domestic product this year as the coronavirus lockdown takes it toll on the economy and tax collection, he told lawmakers.

The amounts on offer at fixed-rate auctions will rise by 500 million rand ($29 million) to 6.6 billion rand from July 7, the Treasury said in a stock exchange statement. Inflation-linked bond sales will increase by 600 million rand to 2 billion rand from July 3. The sale amounts were raised by a combined 34% in March.

Yields on 2026 notes climbed six basis points to 7.63% by 3:38 p.m. in Johannesburg after trading as low as 7.46%. Those on benchmark 10-year securities was one basis point higher at 9.19%, erasing a decline as low as 8.99%.

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