South Africa: Is Emerging-Market Hard Currency Debt On a Winning Wicket?


Yield-hungry investors have been lapping up emerging-market hard currency debt, including South Africa's. But October 2019 will confirm whether this is a turn in the tide of global sentiment or merely a tactical exploitation of opportunities that presented themselves in September. South Africa, in particular, has a lot to lose in October if it doesn't give global investors a reason to believe in its future.

A relative lull in US-China trade tensions in September 2019 saw a variety of emerging market sovereign debt issuers, including South Africa, take advantage of fixed interest investors' hunger for yields.

During September, Abu Dhabi tapped the global market for $10-billion, South Africa $5-billion, Ecuador $2-billion, Bahrain $2-billion, Uruguay $750-million, Armenia $500-million and Kazakhstan €1.2-billion.

Barclays Private Bank ascribes the increased appetite for emerging market bonds to the prospect of trade talks between China and the US in October, combined with more attractive spread levels between emerging market bond yields and US Treasuries, which were above the average 325 basis points in August.

The bank believes this elevated demand could remain in place:

"Continued monetary accommodation by central banks globally and depressed yields in the developed markets will likely support demand for higher-yielding emerging market...

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