The market has already downgraded South Africa to junk

News24
12 Aug 2019, 17:44 GMT+10

Moody hasn't said it, but investors already think it: South Africa's credit is junk.

The company, which rates South Africa's debt Baa3, the lowest investment level, is due to review its assessment in November. Given Eskom's financial woes and its implications for government debt, the market is pricing in a downgrade.

The premium investors demand to hold South Africa's dollar bonds rather than US Treasuries is almost twice as much as the average for investment-rated emerging markets. It's also wider than the spread for Brazil, which has a non-investment grade rating from Moody's, S&P Global Ratings and Fitch Ratings. The risk premium has climbed since mid-July, when the government announced it would increase borrowing to support Eskom.

South Africa isn't benefiting from the global hunt for yield. While average local-currency yields for emerging markets have been falling, South Africa's have been rising. The premium of South African yields over developing-nation peers is now at the highest since February. That suggests investors are positioning for fiscal deterioration, and a credit downgrade.

READ | Moody's: SA's Eskom bail out plan credit negative

The cost of insuring South Africa's debt against default is much higher than that of Russia, which has a similar Baa3 rating with Moody's. It's also higher than Brazil, rated two levels lower.

Moody's has been "too kind," said Win Thin, head of currency strategy at Brown Brothers Harriman & Co, who predicts South Africa's credit rating may fall three levels into junk.

Watch latest videos

News RELEASES

Publish news of your business, community or sports group, personnel appointments, major event and more by submitting a news release to Belfast Bulletin.

More Information

null in null

Northern Ireland

Section

Ireland’s ex-minister Hanafin confirms bid for country’s presidency

DUBLIN, Ireland: Former government minister Mary Hanafin has confirmed she will seek the Fianna Fáil nomination to contest Ireland's...

Shell rejects claim of early merger talks with BP

LONDON, U.K.: British oil giant Shell has denied reports that it is in talks to acquire rival oil company BP. The Wall Street Journal...

Zero-dose children in India declined from 0.11% in 2023 to 0.06% in 2024: Union Health Ministry

New Delhi [India], June 28 (ANI): The percentage of zero-dose children (Those who have not received a single vaccine) in India has...

Minister Lyons hosts reception for NI Transplant Games Team

Minister Lyons hosts reception for NI Transplant Games Team Date published: 1 July 2025 Communities...

Minister Muir makes new AFBI Board appointments

Minister Muir makes new AFBI Board appointments Date published: 1 July 2025 DAERA Minister Andrew...

Kimmins announces Chair Appointment to the Board of Belfast Harbour Commissioners

Kimmins announces Chair Appointment to the Board of Belfast Harbour Commissioners Date published: 1 July 2025...

International

Section