Zuma Scared Markets So Much, South Africa Yields Matched Nigeria

  • South African yields within whisker of West African nation's
  • Spread widened after Zuma backtracked on finance minister

For a moment last week, bond traders judged South Africa almost as risky as Nigeria.

As South African assets plunged in the wake of President Jacob Zuma’s shock decision to fire his finance minister on Dec. 9, the nation’s bond yields only just avoided rising above those of the West African country, which has a credit rating four levels lower and a reputation for corruption and political upheaval.

The chart below shows how average yields on rand-denominated government bonds soared to a record 10.46 percent on Dec. 11, less than one basis point from being above those of Nigeria’s local-currency government bonds for the first time ever, according to data compiled by Bloomberg. Zuma roiled markets when he dismissed Nhlanhla Nene from the finance portfolio and replaced him with little-known lawmaker David van Rooyen, before changing his mind four days later.

South African bonds: almost as risky as Nigeria
South African bonds: almost as risky as Nigeria

The chart shows that the yield gap between Africa’s two biggest economies had never been smaller. It was as much as 891 basis points, or almost 9 percentage points, in February, when Nigeria’s yields soared after its government postponed a presidential election following an upsurge in attacks by Boko Haram militants.

Nigeria is ranked 136 out of 175 nations in Transparency International’s 2014 Corruption Perceptions Index, with South Africa at 67, and the West African nation’s debt is rated B+, or four levels below investment grade, by Standard & Poor’s, versus South Africa’s assessment of BBB-, one step above junk.

Some normality was restored when the spread widened to 45 basis points on Monday, the day after Zuma succumbed to pressure from markets and bankers and replaced Van Rooyen with Pravin Gordhan, who had served as finance minister between 2009 and 2014.

South Africa’s bonds rose again on Tuesday. Yields on securities due in December 2026 fell 41 basis points to 9.51 percent at 4:11 p.m. in Johannesburg.

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