15 October 2020 by jbchevrel
Today South Africa (SOAF) CDS widened +5bp along with other EM sovereign CDS. Turkey +8 Russia +2m makes SOAF move look like pure beta. However, on the idiosyncratic side of things, South Africa’s President Ramaphosa told lawmakers in Cape Town today about the country’s reconstruction and recovery plan to re-industrialize an economy focused on small businesses, growing them and strengthening medium and large businesses. President Ramaphosa also spoke about his plans to accelerate structural reforms, fight crime (corruption) and improve the capability of state. The fiscal action is bad for SOAF CDS, regardless what the central bank (SARB) will do next. More easing is expected on SARB, this is why today we can note the bear steepening in ZAR swaps as well, with short-end better received. The SARB is expected to ease soon on the monetary side, in order to facilitate the government’s fiscal plans. Echoing this sour sentiment, ZAR lost almost -1% vs USD. Other EM currencies are also down, but not by as much. For instance the cross ZAR/TRY is down -0.5%. Bear steepening hit SAGBs too (these are local currency Govies) as some offshore investors were unwinding their positions in the belly of the curve. The big catalyst though, will be the Medium-term Budget Policy Statement (MTBPS). That may be why SOAF CDS didn’t budge much today (?) SOAF Finance Minister Mboweni had asked parliament to postpone this to October 28, showing how difficult it has been for the government to agree an economic policy package to address the COVID crisis. On its current trajectory, the SOAF Debt-to-GDP ratio will reach 100% by 2023.