Guiding consumers since 2009

SA bonds could depreciate further

By Staff Writer
South Africa’s bond market is losing its low-risk appeal and according to reports there could be even further losses.
 
JP du Plessis, fixed income portfolio manager at Prescient Investment Management, told the Argus that bonds have been regarded as a safe-haven investment but investors may soon have to consider other alternatives. 
 
In May this year, Reuters stated that data from the Johannesburg Stock Exchange showed that foreigners sold almost five billion rand (more than $500 million) worth of bonds during in one session alone. 
 
Why are bonds losing their appeal?
 
Rob Spanjaard, director at REZCO Asset Management, said that bonds usually behave inversely to the interest rate. Now that interest rates are going up globally, it has forced the value of bonds to go down. 
 
Absa’s first quarter asset management investment report backed this up stating that with low cash yields, bonds offer higher returns than cash but risk remains from rising inflation.
 
“Bonds will always be less volatile than shares but international investors have bought bonds in South Africa because they could get it at a good interest rate. Now that the United States interest rates have gone up, it impacted emerging economies like South Africa, Mexico and Brazil,” said Spanjaard.
 
No longer a good foreign investment
 
According to reports the US 10-year bonds are 2.5% while the SA 10-year yields are 7.65%. This has attracted foreign investors to our local bonds. 
 
But with interest rates going up in the US, Du Plessis said foreigners could sell off their holdings of SA bonds, resulting in a loss of bond portfolios.
 
What are the other low-risk options?
 
Spanjaard said there are many low-risk unit trusts which investors could look into as an alternative investment.
 
For a low risk investment you can select a unit trust that invests in money market (or cash) instruments.
Spanjaard said when it comes to unit trusts it is best to have a good mixture in your portfolio and speak to your financial advisor about which ones will best suit you.
 
“For now, bonds are not a good investment because their value could depreciate more. At this point it would rather be better just putting your money in the bank,” said Spanjaard.

Recent Articles

Featured Work from home, have meetings at restaurants – the new normal?

With companies moving from static office spaces to working remotely, meetings have predominantly been held online. However, some companies have turned their attention to meeting at variable locations, such as restaurants or hotel conference rooms.

Is a home loan a great savings tool?

There are many saving and investment options available to consumers. What you decide to use is dependent on your circumstances. But should you make your home loan your choice of a savings vehicle and how does that exactly work?

Everything you should know about tax auto assessment

In 2019, the South African Revenue Service (SARS) launched a system, which was dubbed an “auto assessment”, to assist taxpayers with their annual tax returns. But what does this system entail, and how will it impact you?

What does it mean to be a registered Financial Services Provider?

You may have noticed that financial institutions state that they’re registered Financial Services Providers (FSP). But what does this actually mean, and how does this benefit you as a consumer?

Deals

Earn up to 50% of your tax return submission fee back in eBucks

Price: Available on request
When: Daily
Where: Nationwide

Be part of the Belly Of The Beast Weekday Spring Special Lunch

Price: R350
When: From 23 September 2020
Where: Cape Town

Tony’s Roma Breakfast Special

Price: R39
When: Daily
Where: Cape Town


Latest Guide

Guide to debt rehabilitation solutions