JOHANNESBURG: During the so-called "taper tantrum" in 2013, South Africa's 10-year bond yield added 200 basis points; similar market conditions this year have seen yields move in the opposite direction, with political stability trumping shaky economic fundamentals.
Since business-friendly Cyril Ramaphosa became head of the ruling ANC in mid-November, the yield on the 2026 government bond has fallen 110 basis points, weathering a heavy emerging market sell-off and a dollar-driven liquidity crunch.
On Monday, it inched lower once more after S&P Global Ratings kept its rating unchanged at sub-investment grade "BB'/'BB+" with a stable outlook, following a similar decision by Moody's in March.
It was trading at 8.45 percent on Monday compared to a 18-month high of 9.5 percent in November.
"The S&P decision confirms that South Africa is moving in the right direction, that our slide down the credit ladder has been halted for now," said analyst at ETM Analytics Halen Bothma.
"SA bonds have been one of the better performers this year and that's down to the improving sentiment after Ramaphosa's election."
S&P said late on Friday Ramaphosa's election and his reform efforts could unlock higher growth and help keep public debt in check.
South African debt now ranks in the middle of emerging market peers, with its benchmark bond yielding slightly more than India's 7.7 percent and Russia's 7.3 percent, but much less than Brazil's 11 percent and Turkey's 13.7.
Benchmark bonds in Hungary and Colombia, which have similar rating as South Africa at just below investment grade from two of the three big ratings agencies, yield 3.1 percent and 6.6 percent respectively.
Analysts see the yield trending lower as Ramaphosa's anti-corruption drive starts to make a dent in the poorly run state firms that have been a drain on the public purse.
"There's definitely been a huge improvement on the political front which we're very positive about but that's just one of the boxes that needs to be ticked," said fund manager at Sanlam Melville du Plessis.
"International investors are weighing all of this up as well as looking at the yield on offer, which is pretty good."
Foreign holdings of government bonds are at an all-time high of nearly 43 percent, far above the emerging market average. Year-to-date purchases are 100 billion rand ($8 billion) more than they were at the same time last year.
The central bank believes bonds are slightly over-valued but said last week it did not expect a pull-back similar to 2013 when the United States began raising its lending rates after half a decade of large-scale bond buying.
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