The recent stream of negative economic and political news in South Africa has significantly increased the risk premium of South African bonds by 80 basis points or 0.8 percent.
If you look at where South African 10-year local bonds would normally be trading by using the US 10-year government bond and the JP Morgan Emerging Market Bond Index as valuation benchmarks, we can see the size of the risk premium being priced in.
The additional risk premium is now equal to what we saw in the days running up to the ANC elective conference in December 2017. Investors, and particularly foreign investors, are wary.
These levels offer opportunity, but for those with a slightly stronger stomach. Volatility and uncertainty are likely to remain an issue, but these high entry yields offer good value.