What’s been happening:

1. Everyone paid some fees (it’s the end of a quarter, after all).
2. The end of the Platinum Strike dovetailed nicely into a Metalworkers Strike – and much complaining that the staff at Eskom can’t strike because supplying electricity is regarded as an essential service.
3. The Satrix is doing awesomely well – both as a once-off, and as a regular monthly investment.

Some indicators:

 

Here’s my real take-home message from the indicators:

1. Those indicators are behind the times.
2. So either StatsSA is being pretty useless about releasing new data, or tradingeconomics.com is being equally lax about updating their data.

Talking About the 10 Year Government Bond Yield

On a separate note, I was asked about reading the bond yield:

1. The 10 Year Government Bond Yield has gone up from 8.03% to 8.17% in the seven weeks that I’ve been watching this.
2. In finance news, you might hear this referred to as a 14 basis point move, or 14 “bips”.
3. When I think of yields, I find it helpful to think about how my bank would quote me on mortgage bond application. If I was a risky client, I would get charged a higher interest rate (say, Prime + 4%); and if I were more reliable, then I might get a “more favourable rate” (say, Prime + 1%).
4. Government bond yields work in the same way. When the market sees them as more reliable, then it charges the government a lower interest rate (that is: a lower yield). And if the market perceives higher risk, then the yield goes up (the market demands a higher interest rate for the higher risk of lending to the government).
5. So in the case of South Africa’s government, markets are demanding a higher yield than they were seven weeks ago. Some possible explanations:
   1. Investors are worried about higher inflation (so the government yield needs to pay more to cover it)
   2. Investors are slightly less convinced that the government will settle its debts (so they ask for a higher return). Although, to be honest, that’s unlikely. Even the Zimbabwean government in the midst of hyperinflation didn’t default on its Zimbabwe-dollar-denominated debt – it just printed money to pay for it. The SA government could do the same.
   3. People are worried about the exchange rate weakening (so, again, the government yield needs to pay more to cover it). Although again, I find this argument a bit weak. Government bonds tend to be held by pension funds, medical aid funds and so on to cover their rand-denominated obligations. The exchange rate is not really so important in those settings.
6. So the yield movement probably has more to do with that inflation rate moving from 6.00% to 6.60%.
7. Of course, it could just be a market-timing story – where a few big investors had to cash out to settle some of their obligations that fell due, and their sales drove down the price of 10 year government bonds (and thereby drove up the yield).
8. I hope that helps…

Until next week.