EMEA Fixed Income:South Africa -after the downgrade is before the downgrade...

Worst case scenario avoided…While S&P downgraded South Africa’s foreign and local debt to non-investment grade on Friday last week, Moody’s placed both foreign- and local-currency government bonds “only” on review for a downgrade. In other words, Moody’s maintains its sovereign rating for South Africa at Baa3, which is one notch above non-investment grade. Particularly of interest was the decision for the local debt rating given that a downgrade to non-investment grade would have triggered an exclusion in the WGBI.

    In this report we show why a potential downgrade by Moody’s is clearly not off the table, but all eyes will be on the upcoming ANC conference as the next event risk.

    We alsoprovide a quick update on the most important variables for South Africa’s fixed income market that further justify our trade recommendations.