JOHANNESBURG – South African bonds are facing heightened volatility over the new year if the economy is downgraded by rating agencies to junk status.
Ratings agency S&P Global last week reviewed South Africa’s outlook from stable to negative, citing the rapid worsening of the country's debt metrics, low gross domestic product growth and high fiscal deficits.
Moody’s also lowered South Africa’s outlook on its investment-grade rating to negative last month, effectively giving the country until the February 2020 Budget to fix its fiscal metrics.
This downward trend may trigger a bonds sell-off by credit-sensitive investors and further uncertainty from active fund managers about risk-free assets.
The bond market is a good indication of the health of a country's economy.