At yesterday’s weekly auction, global bond investors offered to lend three times the R3.3bn which the South African Treasury was looking for. But SA had to pay 75 basis points (0.75%) higher interest than two months back.
What is usually a low key affair was closely watched as it was the first time since Treasury increased its weekly tender by R650m (from R2.65bn). SA needs the additional funding to close a three year gap now projected at R122bn. Since spendthrift Zuma took office, SA’s debt to GDP ratio has doubled from 28%, with interest costs rising in proportion.
This higher rate adds R25m a year to the interest bill on the weekly sale of debt. As the bonds run from between 14 and 31 years to maturity, SA is now paying R350m more interest at its weekly auction because of higher rates demanded by investors.
There is some good news, though. At these interest rates the market has priced in the impact of a downgrade to junk when Moody’s and S&P review their ratings next Friday. And although traders expect junk to be confirmed, they are also signalling the end of Zumanomics is nigh. Let’s hope they’re right.