The Science Of ...

Bond market 101 (and why foreigners are dumping South African bonds)

I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.

James Carvill, Bill Clinton's advisor

In the hours after Finance Minister Malusi Gigaba’s “mini budget” speech last week, foreign investors dumped R5.1 billion of rand-denominated bonds.

That’s the biggest single-day outflow in more than six years.

Yields – or what Government has to pay to holders of those bonds – surged by 56 basis points to 9.42%, the highest level in 19 months.

What are bonds, and what is the bond market?

A government bond is a financial instrument by which government borrows money from investors.

It promises to periodically pay interest (at a rate referred to as “yield”), and to repay the face value of the bond at an agreed upon maturity date.

International credit ratings agencies provide ratings for bonds.

The private sector analogue of a government bond is a corporate bond.

The bond market refers to the financial market where participants issue or buy debt, usually in the form of bonds.

The Money Show’s Bruce Whitfield interviewed RMB Fixed Income Specialist Gordon Kerr for his weekly “The Science Of” feature.

Listen to the interview in the audio below (and/or scroll down for more quotes from it).

An efficient bond market can be the difference between winning and losing a war.

Gordon Kerr, RMB

There will be selling [if South Africa gets downgraded]…

Gordon Kerr, RMB

Nene-gate is the worst thing that has ever happened to our bond market…

Gordon Kerr, RMB

Our bond market is more than 40% owned offshore.

Gordon Kerr, RMB

US bonds pay about 2.5%... The UK is about the same… Some European bonds trade at negative rates…

Gordon Kerr, RMB

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