JOHANNESBURG: South Africa's government bonds held mostly steady on Tuesday, balancing between a downgrade by Moody's last week that soured sentiment and optimism from their inclusion in Citigroup's World Government Bond Index (WGBI) from the start of this month.
The yield on the three-year benchmark was 0.5 basis points lower to 5.45 percent and that for the 14-year issue dropped 1 basis points at 7.57 percent.
"Even though it brought us in-line with Fitch and S&P, the negativity surrounding that has had more dominance than the WGBI flows right now," said Steve Arnold, a bond trader at Investec.
Moody's last Thursday cut South Africa's government bond rating by one notch to Baa1 from A3, citing worries about the country's institutions as well as future political stability and room for policy manoeuvring.
The long-awaited debut in Citigroup's WGBI - first announced in June but not officially effective until Oct. 1 - puts South Africa alongside 22 other countries on the index, tracked by an estimated $2 trillion worth of funds.
"If there is no finality in the strike action and there's more pressure on the rand, the selloff could continue."
South Africa's mining sector, responsible for about 6 percent of gross domestic product, has been hit by a wave of wildcat strikes over the past weeks that have slowed production.
The rand traded at 8.3731 against the greenback at 0651 GMT, slightly weaker than Monday's 8.3699 close in New York.
Treasury will sell a total of 2.1 billion rand over a range of its 2023, 2041 and 2048 government bonds in the session. Results are due after the auction closes at 0900 GMT.
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