THE NATIONAL Treasury yesterday postponed its switch auction by a week due to recent heightened market volatility and the upcoming interest rates announcement.
The Treasury previously announced that the switch auctions would be conducted in line with the published calendar.
This was aimed at creating more certainty regarding timing, amount and duration to enable investors appropriately to price the switch transaction.
The Treasury had a switch auction scheduled for March 25, the same date on which the South African Reserve Bank (SARB) will announce its decision on interest rates.
“However, due to the recent heightened market volatility and the pending Monetary Policy (Committee) rate announcement by the SARB, the National Treasury is postponing the switch auction to April 1, 2021,” it said.
Switch auctions offer existing bondholders the opportunity to move their assets’ maturity out to a number of designated bonds with longer maturities at rates determined by investors through the open auction mechanism.
All transactions are completely transparent, following exactly the same principles and rules as apply to a new issuance.
South African bonds have been through a volatile period this year on concerns over rising global bond yields.
Last week, foreign investors bought and sold South African bonds, although the week recorded sales net of purchases of -R1.1 billion.
Foreign investors have sold -R41.6bn on a net basis since the start of the year, with last week consequently proving a better week.
The yield on the 2026 benchmark government bond fell to 7.31 percent on Tuesday, the yield on the 2023 bond declined to 5.31 percent, and on the longer-dated 2030 issue fell to 9.19 percent.
Anchor Capital’s co-chief investment officer, Nolan Wapenaar, said they were not reading that much into the postponement and did not expect a major market reaction.
Wapenaar said the postponement had been made in the face of erratic pricing, poor bond auctions and the uncertainty from global central banks.
He said global bond markets have been volatile for the past few weeks as the participants adjust to expectations of higher global growth and estimate the impact on inflation and therefore the trajectory of rate hikes from central banks.
“South Africa, along with most economies, has felt this volatility,” Wapenaar said.
“This has prompted foreign selling of South African bonds, and we have seen approximately R45bn of bonds being sold back to South Africa by foreigners.
“At the moment, there is limited demand for longer-dated South African bonds, and the bond auctions for bonds beyond about 12 years to maturity have been poor of late.”
BUSINESS REPORT ONLINE