Written by | From Bloomberg
Investors in South African bonds are signaling mounting concern the nation’s credit rating will be downgraded for a third time this year.
Yields on South Africa’s $1.5 billion of bonds maturing in January 2024 climbed 39 basis points since Dec. 4, when Fitch Ratings Ltd. said the nation’s creditworthiness, currently at BBB, was deteriorating. The premium investors demand to hold the country’s dollar bonds rather than U.S. Treasuries rose 52 basis points in the period, according to JPMorgan Chase & Co. indexes.
The continent’s second-biggest economy is projected to expand 1.4 percent this year, which would be the worst since the 2009 recession, as the nation grapples with the impact of labor strikes, power cuts and rising government debt. South Africa was downgraded by Standard & Poor’s in June to one step above junk, the lowest of the three main ratings companies, while Moody’s Investors Service reduced its ranking last month to two levels above junk.
“South Africa remains one of the most vulnerable emerging markets,” Nicholas Spiro, the London-based managing director of Spiro Sovereign Strategy, who predicts a cut by Fitch today, said in an e-mail on Dec. 9. The nation faces “an excessively large external deficit to finance amid a worrying lack of growth,” while “prospects for meaningful fiscal and structural reforms remain bleak,” he said.
Debt Rises
Fitch, which has a negative outlook on South Africa’s debt, and S&P both publish the results of their rating reviews today. A downgrade by S&P is less likely because it has a stable outlook with its BBB- rating, said Moshabele Modise, an investment analyst at Citadel Investment Services in Cape Town.
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