Ramaphosa asserts on Central bank nationalization as bonds hit six-month high

Demand for South Africa's short-term bonds hit a six-month high at an auction on Friday just 24-hours after President Cyril Ramaphosa said the government would go ahead with plans to nationalise the central bank. Ramaphosa on Thursday told lawmakers he would push through his ruling African National Congress's (ANC) decision that the bank states, rather than privately owned, contradicting the bank's head who has warned against government interference.

On Wednesday Central Bank Governor Lesetja Kganyago, whose five-year term expires in November, repeated his opposition to the move and switching mandates, saying it was unrealistic for the central bank to target specific employment levels. Ramaphosa's announcement initially sent a ripple through local markets but was largely ignored by yield-hungry investors willing to overlook local issues, in South Africa and other emerging markets, in favour of sizeable returns.

The government's benchmark 10-year bond remained bid at a yield of 8.665 per cent and the large demand at an auction of short-term debt suggested investors were happy to pocket the high yield while they assessed the impact the move would have. Bids at the National Treasury's weekly auction of short-term bills saw investors offer over 7.3 billion rand ($506 million) for government's three-month bills, pushing the bid-to-cover ratio to its highest since September 2018.

"President Ramaphosa's announcement in parliament yesterday that the government would press ahead with nationalising the SARB hurt S.A. markets," said analysts at Investec in a note. "Ultimately, it now comes down to just how much constitutional protection the SARB will enjoy."

(With inputs from agencies.)