Bonds rally, rand gains as Godongwana outlines ratings-friendly debt trajectory - News24
South African government bonds rallied, and the rand strengthened after Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement (MTBPS) showed government debt as a proportion of GDP had stabilised.
The yield on SA’s 2048 bond fell 18 basis points to 9.16% before some profit-taking saw it settle at 9.20% at 14:48 on Wednesday. The rand advanced to R16.36/$ after trading at R16.43/$ prior to the release of the MTBPS, which is also known as the mini-budget.
“All in all, this is a good, bond-friendly budget. It confirms that debt to GDP has peaked and will fall gradually, and rating agencies should receive it well,” said Adam Furlan, a portfolio manager at Ninety One. “The rand reacted marginally positively, but the bigger move was in bonds.”
Godongwana’s MTBPS showed the government’s gross tax revenue for the 2026/27 fiscal year was R17.1 billion higher than he initially outlined in his February Budget, helping to narrow the consolidated budget deficit to 3.9% of GDP in 2026/27 from 4.2% the previous fiscal year.
However, the big takeaway for ratings agencies was the signal that debt-to-GDP had stabilised at 78.4% in 2025/26. This key indicator of government financial health is set to decline slightly to 78.2% in 2026/27, with further declines projected for the next decade.
Government also plans to implement a bond buyback programme in 2026/27 to replace shorter-term debt nearing maturity with longer-dated debt. This helps smooth out the so-called yield curve and can result in savings on interest payments, which are already consuming 21 cents of every R1 in government revenue.
“Historically, the National Treasury has used switch auctions to help smooth out redemption payments, but such an approach effectively defers the debt liability into the future and, as such, can keep the shape of the yield curve stubbornly steep,” Absa’s fixed income and currency strategists Mike Keenan and Siyasiya Nonkonela wrote in a client note after the MTBPS. “Bond buybacks, on the other hand, actively reduce the debt stock and can generate instantaneous savings for the National Treasury if the discount bonds are redeemed prior to the scheduled maturity date.”
Keenan and Nonkonela said the better-than-expected government revenue enabled it to cut its weekly auction of nominal bonds by about R600 million to R1.95 billion a week, while the weekly auction size for inflation-linked notes was cut by about R100 million to R900 million a week. Yet despite this reduced debt issuance, the government was still able to provide consumers with temporary fuel price relief.
The relief comes in the form of a lower fuel levy, which will be cut by R3 per litre for diesel and R1.50 per litre for petrol from 4 November until 1 December, after which the temporary relief will narrow to R1.50 per litre for diesel and R1 per litre for petrol. This will cost the state about R10 billion in lost revenue.
A major plus in the budget from a ratings perspective was government’s proposal for a legislative fiscal anchor, though it has opted for a principles-based approach rather than a hard numerical goal. The International Monetary Fund (IMF) had recommended SA adopt a concrete fiscal anchor of lowering debt to 70% of GDP by 2030, but Treasury is recommending that, after each general election, the cabinet lay out its fiscal objectives over a five-year time horizon.
An independent platform profiling asset managers, discretionary fund managers, investment platforms and solution providers.
Get each new episode of Bruce Whitfield’s weekly podcast delivered to your inbox to hear his take on business without the boring bits.
Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
