R186 Long Bond

12 May 2020 By PDSNET

Sometimes things happen in the markets which cause you to ask the question,

"What can they see that I can't see?"

The progress of the yield on South Africa's long bonds is like that.

South Africa has just been downgraded by both Moodys and Standard & Poors. We are officially at junk status - so you would think that our government debt instruments would be out of favour among international investors. Here in South Africa everything seems so bad. There is hardly any good news and investors are almost universally negative.

And yet the yield on our long bonds continues to fall.

The yield on a bond moves inversely to the price of the bond. Bonds have a fixed "coupon" on interest rate - so when the price of the bond goes up the effective yield on it falls. Our long bonds are sought after by international investors because they offer a real return - in other words, the yield is higher than our domestic inflation rate. In South Africa the yield on our bonds was as much as 13% at the height of the COVID19 panic and our inflation rate was around 4% giving investors a real return of as much as 9%.

So when overseas investors like what we are doing they buy our bonds and push the effective yield down. Their perceptions are impacted by how they see our political leadership and management.

And overseas investors have been piling in - pushing the effective yield on the R186 bond down to as little as 7,65% - amazingly, that is lower than it was before the start of COVID19 - consider the chart:

R186 RSA 10.5% Bond November 2018 to May 20202 - Chart by ShareFriend Pro

You can see here that prior to COVID19, the effective yield on the R186 had been falling gradually and steadily as overseas investors gained confidence in what President Ramaphosa was doing on many fronts. Then the yield spiked up as "risk-off" sentiment caused investors to flee into safe haven investments like gold and US Treasury bills. Then, as many countries began to relax their lockdowns, the mood changed and the hunt was on for real return. The yield fell heavily as investors gained confidence in Ramaphosa and saw how effectively South Africa was handling the pandemic.

Sometimes it is difficult for South Africans to see anything except "doom and gloom" - but clearly overseas investors see our situation quite differently. They are obviously really beginning to appreciate the strong leadership displayed by Ramaphosa over the crisis - something which has been notably absent from other first world countries, especially America.

So, here is a glimmer of hope amid all the negativity.  


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

12 Year Bull Trend

On 6th March 2009, just over 12 years ago, the S&P500 index made an intra-day cycle low at 666.79. It was the end of a 17-month bear trend which had seen the S&P fall by 57,4%. The world was in the teeth of the sub-prime crisis and negativity abounded. Investors were terrified.  The response to the crisis was massive and world-wide.

The Confidential Report - April 2021

America
The S&P500 index closed above 4000 for the first time on Thursday 1st April 2021 at 4019.

 

You can see the impact of the COVID-19 V-bottom, which we regard as an extraneous non-economic factor, and the subsequent acceleration of the S&P. Obviously, the

Hammerson

Hammerson has been listed on the London Stock Exchange since 1945. It is a real estate investment trust (REIT) and owns “flagship destinations and premium outlets in key cities across the UK and Europe”. Most of the company’s properties are shopping malls like Brent Cross in London, The Bullring in Birmingham and Dundrum Town Center in Dublin. Obviously,

Afrimat Revisited

On 25th May 2020, ten months ago, we published an article on Afrimat in which we said we liked what the company was doing and considered it to be undervalued. At the time Afrimat shares were trading in the market for R29. In the past ten months they have risen to R46 – a gain of 58,6%. Consider the chart:




You

Aspen

The relationship between technical analysis and fundamental analysis is the relationship between the reality and the perception of that reality in a company. The fundamentalist searches for the share’s real value by studying the company’s financials. The technician studies the impact of investors’ perceptions as they are reflected in the

OBV and Mpact

Joseph Granville, talking about the share market, famously said, “volume leads price”. By this he meant that the volume traded in a share tends to begin increasing before the price rises. He encapsulated this idea in his “On Balance Volume” technique (OBV). If you are not clear on OBV go back and re-read On

The Confidential Report - March 2021

America
The major change that has come about in America since the advent of the Biden administration has been a broad shift towards “risk-on”. The uncertainties associated with Trump are fading. American investors have welcomed the economic logic and sanity of the new administration with a desire to generate returns which are well above those offered by US Treasury

Naspers

Naspers is the largest share on the JSE with a market capitalisation of R1,67 trillion. Naspers was founded in 1915, as a printer and publisher of newspapers and magazines. It has since evolved into an international social media, entertainment and gaming company.

This share has the problem that it is undervalued in relation

Sibanye Vs Amplats

Right now, comparing Amplats with Sibanye is instructive for private investors – and made more interesting because:

  1. They are both mining houses producing precious metals, mainly platinum group metals.(PGM's).
  2. They have the same financial year-end (31st December).
  3. They have both recently produced trading statements for the 2020 financial

Hudaco

In the current environment investors should be looking for listed companies that have managed to weather the COVID-19 storm and emerged with strong growth. These companies would have had two important components before the pandemic began – a strong balance sheet and highly competent management. Hudaco had both.
Hudaco is a company with two primary divisions:

  1. The