Bonds bleeding

SHARE   |   Monday, 25 January 2016   |   By Kabelo Adamson

Emerging markets bonds are said to be facing the worst start of the year with Sub Saharan Africa the hardest hit region. News agency, Bloomberg reported this week that African securities fell 5.4 percent this year compared with the average 1.3 percent loss in emerging markets in the first two weeks of the year since the observation started in 2010. It is said this will make it harder for governments to issue debt at the time when they need financing the most to fund budget deficits due to falling prices of commodities. The local economy is also facing a deficit of 2.6 percent due to downturn in the diamond market.

Minerals contribute about 40 percent of Botswana’s total revenue and 80 percent of export earnings. Even faced with a deficit, the government can still draw from the Foreign Exchange Reserves to finance the deficit. Botswana’s reserves are said to be above P80 billion. Speaking an interview on Friday, a researcher at Motswedi Securities, Tlotlo Ramalepa, said even though they do not deal directly with bonds, there are a number of factors that affects the bonds performance. He said in most cases bonds go down when the interest rates go down and said there would be number of factors such as risks. He said bonds also differ according to maturity with short bonds being riskier than long term ones.

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It is said that growth in Sub Saharan Africa slowed to 3.5 percent last year from 5 percent in 2014 and accelerating to 4 percent this year. At least seven Sub Saharan African countries’ currencies including the South African Rand are said to have lost more than 20 percent of their value against the Dollar since the start of last year. On the other hand, the local currency has remained volatile against other currencies last year and expected to remain as such this year. Recently it was announced that the rate of crawl of Pula has been adjusted from zero to 0.38 per year annually, a move experts say it was meant to appreciate the local currency mainly against the Dollar.