Auction shows foreigners still keen on S.African debt

Demand for South African government debt picked up at a weekly auction on Tuesday mainly due to strong foreign buying.

Offshore interest in local bonds has accelerated in the past few months due to high local yields, monetary policy that is seen remaining accommodative this year and favourable debt metrics compared with many developed markets.

Government sold 1.1 billion rand worth of 2020 notes and 1 billion rand from the 2041 issue and both had higher bid to cover ratios that at their previous sales.

The nine-year paper was 2.4 times covered and the 30-year issue was 2.8 times subscribed. Both bonds cleared at slightly lower yields than previously.

"The bid-to-cover ratios are above two on both of them so I think that indicates there's still demand for our local bonds even despite the uncertainty in the world," said Marten Banninga, head trader at World Wide Capital Securities in Johannesburg.

Foreigners purchased 1.4 billion rand worth of debt last week, while they sold off equities, pushing yields to multi-week lows across the curve.

Political brinkmanship in the United States over the nation's debt ceiling has called its AAA credit rating into question, playing havoc in markets globally.

Another dealer said local interest has waned as players deem current yields to be low on the benchmarks.

"Locals were not really excited. The levels have come down quite a bit the last couple of days and we're at the bottom of the range (on the R157)," a local dealer said.

"These kind of levels feel bottomish to everyone locally so that's why they're not really excited about buying," he added.

Dealers see the yield on the four-year benchmark -- currently at 7.40 percent -- as lacking momentum to break out of its 7.58-7.32 range this week after a rally driven by a dovish Monetary Policy Committee statement and weak data last week.

The MPC said the local economy was fragile, suggesting that interest rates could remain at 30-year lows this year.