South Africa: Bond Yields Spike As Mboweni Signals Worsening Debt Outlook

South African Finance Minister Tito Mboweni tables the 2020 Medium Term Budget Policy Statement, October 28, 2020.

Finance Minister Tito Mboweni's Medium Term Budget Policy Statement (MTBPS) has failed its first crucial test. Bond yields spiked as he grimly outlined a worsening debt outlook.

As Finance Minister Tito Mboweni began addressing Parliament, the yield on the benchmark 10-year bond was fetching 9.285%, up about six basis points on the day, according to data. It then spiked to 9.415% as he spoke, before settling back to 9.28% as his 50-minute speech wound down. The Rand also lost ground against the dollar, stumbling from 16.38/dlr to 16.4775 - a one-week low.

"For markets, the key takeaway is that, all things considered, South Africa's growing public debt is still a problem," said Razia Khan, chief Africa economist at Standard Chartered Bank.

The JSE Top-40 index extended losses on the day to be 2.6% lower, but that was probably as much a function as a downturn in global stock markets rattled by surges in Covid-19 cases in key markets such as the US.

Mboweni warned of a worsening sovereign debt outlook, which means the government will have to borrow more over the next few years, straining the state's ability to repay lenders what it owes. As a result, investors will...

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