SA breaks jinx as bonds dodge emerging-market losses

It will take more than a bit of trade tension to derail South Africa’s bonds.

While the average benchmark bond in emerging markets has handed investors a loss of 0.8% this month, the country’s sovereign debt has given a total return of 1.9%, the most among 25 developing nations tracked by the Bloomberg Barclays Global EM Local Currency Government Universal Index.

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Strategist Per Hammarlund of SEB AB in Stockholm and trader Alvin Chawasema of Sasfin Securities in Johannesburg say this month’s election results have removed a key idiosyncratic risk, pushing bears to unwind bets. The ANC secured a victory with a 57.5% margin, giving President Cyril Ramaphosa enough room to pursue a reformist agenda.

''Our bonds, especially the longer-dated ones, had quite a bit of risk priced in them and this is unwinding post-election,'' said Chawasema, a fixed-income trader at Sasfin. ''If the cabinet has the right mix we can see more gains.''

The rally in South African bonds is a departure from the trend in recent years when a sell-off elsewhere in the developing world quickly spread to South Africa. In 2018, the woes of Turkey and Argentina pushed investors to unload their rand-denominated holdings, given the country’s reputation as a proxy for emerging-market risk.

Yields on the benchmark 2026 securities have fallen to a one-year low, with a drop of 14 basis points this month. The bonds traded at 8.41% by 11:37 in Johannesburg.