SA Reserve Bank begins bond buying programme to ease liquidity crunch
JOHANNESBURG - South African government bonds jumped on Wednesday, after the central bank said it would begin buying government debt as part of emergency measures to ease a liquidity crunch linked to the global coronavirus pandemic.
The yield on the 2030 government bond plunged 118 basis points to 11.175% by 0810 GMT, while the rand traded around 0.7% stronger at 17.4000 to the U.S. dollar.
The South African Reserve Bank said there was no predetermined amount for the bond purchases.
South Africa will enter a 21-day lockdown starting at midnight on Thursday to try to contain the coronavirus, with confirmed cases rising to 709 on Wednesday, the most in sub-Saharan Africa.
The lockdown will pile added pressure on an economy that is already in recession and where roughly 30% of the population is unemployed.
Some analysts expect Moody’s to cut South Africa’s last investment-grade credit rating to “junk” on Friday when it is due to conduct a rating review.
South Africa is currently on a ‘Baa3’ rating with a “negative” outlook.
The Johannesburg Stock Exchange’s Top-40 index was up 4.7% and the broader All-Share Index gained 4.7%, with the mining sector up 6%.
“The SARB will commence a programme of purchasing government securities in the secondary market,” the bank said in a statement, adding that it would buys bonds of varying maturity dates.
“In addition to providing liquidity and promoting the smooth functioning of domestic financial markets, this will allow the SARB to enhance its Monetary Policy Portfolio (MPP).”
It is the first time the bank has entered the bond market in such a manner but traders said it was unlikely to be the last such measure.
The bank’s senior manager for market operations, Samantha Springfield, said there was no predetermined amount for the purchase, but that the aim was to “assist in adding liquidity to the bond and money market.”
In the statement the bank also said it would offer repurchase agreements, or repos, for periods of 7 days to longer-term maturities of up to 12 months.
Bond prices reacted positively to the announcement, with most long-dated instruments seeing bond yields fall 1% or more.