Investors have been dumping South African government bonds at a rate of almost R2 billion ($132 million) a day in August.<\/p>\n
With issuance increasing and a downgrade to junk a looming possibility, non-residents have sold a net R14.4 billion of the debt in August so far, according to JSE data compiled by Bloomberg.<\/p>\n
That\u2019s an average of R1.8 billion a day. The sales have wiped out inflows at a time when the country needs foreign investment to close a current-account deficit that was equivalent to 2.9% of gross domestic product in the first quarter.<\/p>\n
The government increased the amount of local-currency debt sold at weekly auctions by 37% last week to help pay for a 128 billion-rand bailout for Eskom Holdings SOC Ltd., the state-owned electricity company.<\/p>\n
That will push up borrowing and widen the budget deficit, placing the country\u2019s last-remaining investment-grade rating at risk. Moody\u2019s Investors Service, which rates South Africa\u2019s debt at Baa3, is reviewing its assessment in November.<\/p>\n
Foreign ownership of South African government debt fell to 37.9% at the end of July, the lowest level this year, from as high as 42.8% in March 2018, according to National Treasury data.<\/p>\n
Foreigners are exiting despite yields that are among the highest in emerging markets, suggesting they\u2019re worried a downgrade to junk would see the nation\u2019s bonds kicked out of indexes that track investment-grade debt, such as Citigroup Inc.\u2019s World Government Bond Index.<\/p>\n
Though foreign ownership is already the lowest this year, the selloff has continued unabated.<\/p>\n
Inflows have turned into net outflows of R3.2 billion for the year in August – even at a time when a world awash with negative yields is fueling demand for riskier assets such as emerging-market debt.<\/p>\n
In dollar terms, South African local-currency bonds have underperformed all major emerging markets in August except Argentina\u2019s.<\/p>\n
Yields on benchmark government securities have risen 111 basis points this month, while the rand has depreciated 5.5% against the dollar, further eroding returns for foreign investors.<\/p>\n