Foreign holding of South Africa bonds sinks to four-year low

South Africa's bond yields soared on Friday and the rand crashed to all-time lows as the growing likelihood of a global recession due to the spreading novel coronavirus compounded concerns about the local economy following a ratings downgrade to junk.

Data from the National Treasury showed foreign holdings of government bonds fell to 34% in March, the lowest since February 2016, as a selloff gained momentum after Moody's revoked the country's last investment grade rating.

Last Friday, Moody's downgraded the rating one notch to Ba1 from Baa3 and maintained a negative outlook. S&P Global and Fitch downgraded Africa's most industrialised economy to sub-investment grade in 2017.

The rand and bonds had mild outflows in recent sessions as some investors opted to pocket the high yield on offer. South African bonds are on track for a selloff of as much as $12 billion as the country falls out of the benchmark World Government Bond Index (WGBI).

More than 55 billion rand ($3 billion) has already exited South African bonds in 2020. Like many emerging markets, South Africa's assets have been pounded in the past two weeks as the spread of the coronavirus and an oil price rout sparked a broad market selloff.

"We note that - based on our calculation and adjusted for outstanding linkers, the share in nominal local bonds has never been below 40% looking at data available since Jan-13. In other words, the current share is close to record low levels," said Christian Wietoska of Deutsche Bank.

At 1500 GMT on Friday the yield on the benchmark 2026 government issue had jumped 35.5 basis points to 10.465%. The shorter end of the curve had also steepened. The one-year treasury bill was four-times overbid at a weekly auction.