By Agency Reporter

South Africa plans to issue R135bn of government bonds in the domestic debt market this year to help cover its budget deficit, the National Treasury’s Head of Asset and Liability Management, Mr. Lungisa Fuzile, said on Thursday.

Fuzile also told Reuters that the bond market might have overreacted slightly after Finance Minister, Mr. Pravin Gordhan’s forecast on Wednesday of a wider-than-expected budget deficit for the fiscal year to March 2012.

“Essentially, what we are saying is that we will use the bonds that we have already got into the market to fund the deficit this year. It’s about R135bn that will be issued into existing local bonds,” Fuzile said on the sidelines of a presentation to parliament’s finance committee.

The yield on the 2026 benchmark government bond, at 8.94 per cent on Thursday afternoon, has risen by about 15 basis points since Gordhan’s speech.

Although the government said it would not issue more bonds domestically to fund the deficit – instead, it would borrow overseas – traders said selling was focused on the long end of the bond curve because that was where investors thought new supply might be delivered.

Fuzile said, “Judging from the commentary that I have read, I think that the market expected that we would issue far less bonds than we had announced earlier.”

“The reaction was not terribly bad but I do think that there may be an element of jitteriness in the market because the figure didn’t come out quite as they had expected. “They probably had anticipated that the recovery in economic growth, the recovery in revenues would then mean a faster deficit reduction than is actually taking place.”

He said the Treasury would take further steps to explain its borrowing plans to the domestic market, and would then conduct an international roadshow to garner support for the $1bn worth of international bonds, which the government planned to issue annually over the next three fiscal years. He declined to comment on the itinerary or timing of the road show.

“We want to maintain relations with foreign investors for our purposes but also for the purposes of our state-owned entities, which have got quite substantial borrowings that they are going to do over the next three years and beyond,” he said.

Meanwhile, the yield spread between the country’s benchmark 2015 and 2026 bonds expanded to a record high on Thursday because of expectations of heavy supply to fund the government’s budget deficit.

Source: Punch