Sovereign spread widens to more than emerging-market premium
Weak global backdrop, policy bungles sap investor confidence
South Africa just set a precedent in the bond market.
As yields on government debt rise, the premium investors demand to hold the country’s dollar securities instead of U.S. Treasuries surpassed that of the average for its emerging-market peers for the first time.
The nation’s so-called sovereign spread has widened 95 basis points this year to reach 507 points on Friday, more than the 503 average of emerging-market peers, JPMorgan Chase & Co. indexes show. That’s the first time it’s happened since records started in January 1998.
South Africa’s rand has slumped 31 percent against the dollar since the beginning of 2015 as commodity prices tumble amid slowing growth in China, South Africa’s biggest trading partner. The currency dropped to a record in December after President Jacob Zuma fired his finance minister, raising concern the government won’t stick to fiscal targets already under pressure from an economy that narrowly avoided a recession in the third quarter.
“We have a combination of domestic uncertainty, which is homegrown by Zuma, and at the same time the international environment is not great,” Nigel Rendell, a senior emerging-markets analyst at Medley Global Advisors LLC, said by phone from London. “I don’t think there are a lot of people that are particularly optimistic about South African investments or bonds in particular.”
