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South African government bonds seem to regain their power

May 22, 2020 | Cbonds

Recall that in late March, Moody's rating agency stripped South Africa of the investment grade rating, lowering government bonds to "junk".

This led to the exclusion of the South African government bonds from the list of FTSE World Government Bond Index (WGBI). Investment funds that are allowed to invest only in investment-grade bonds had to sell their South African government bonds.
In the end-March, South Africa 10Y YTM rose to almost 12.36%. In early April, the South African Rand reached a record low vs the USD as USD/ZAR surged to 19.0721

However, the combination of the South African Reserve Bank's purchase of government bonds and double repo rate cuts within two months from 5.25% to 4.25%, and then to 3.75%, helped ease pressure on the bond market and restore demand for South African government bonds.

On Thursday, May 21, the USD/ZAR pair fell to the level of 17.5838 - the almost same level it was at before the downgrade of SA rating at the end of March. South Africa 10Y YTM returned to the area of 9% last seen in March.


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