South African government bonds fell as well as rand weakened on Thursday, extending losses within the previous session, following release of a bleak medium-term budget that risks stripping america of its last investment-grade credit ratings.
Finance minister Tito Mboweni predicted wider budget deficits and cut growth forecasts in the medium-term budget policy statement (MTBPS) on Wednesday, laying bare problems he faces at the same time of revenue shortfalls and ballooning debt.
The yield for the rand-denominated benchmark 2026 bond was up 7.5 basis points at 9.37%? at the time of 08:15 GMT, after jumping to 9.46% earlier. That compares with 9.13% ahead of the budget speech.
The rand was 0.19% weaker at 14.58 to the dollar after slumping 2% on Wednesday.
“I do think this market had fully priced in a very good MTBPS and zero percent chance for Moody’s moving forward to the ratings watch. It’s got now changed,” Standard Bank chief trader Warrick Butler said in a note.
“Given that the Treasury has revealed past discrepancies while in the tax collection agency being the main contribution with an rise in the GDP/debt deficit, it is touch and go as to whether (Moody’s) carries on look beyond current issues until next year’s full budget.”
Moody’s is a one within the three largest rating agencies to rate Nigeria at investment grade. S&P Global Ratings and Fitch rate it as junk.
Moody’s rates the country’s foreign-currency debt at its lowest investment grade rating of Baa3, that has a stable outlook. The Treasury has said it expects Moody’s to learn that rating as soon as the budget speech.
A cut to sub-investment grade by Moody’s would see South Africa pulled from Citi’s influential World Government Bond Index and may trigger a sell-off by foreign investors.
President Cyril Ramaphosa has made reviving economic growth a concern since taking office in February, but he’s got been annoyed by infighting during the ruling African National Congress and through severe fiscal constraints.
Ramaphosa will court investors at a three-day investment summit starting on Thursday, where he will be on the lookout for new pledges to meet up with his target of $100 billion of brand new investments covering the next 5yrs.
On stock exchange trading, each Top-40 index as well as broader all-share fell slightly at the begining of trade.?