Bond market turnover exceeds expectations and 2006 full year figures

Bond turnover in South Africas bond market during the first ten months of 2006 exceeded R9,6 trillion against R8,1 trillion for the whole of 2005. October's turnover was R1,2 trillion, equalling the record achieved in April 2002.

All of which has far exceeded bond traders expectations. Indeed, the Bond Exchange of South Africa projected market turnover of only R7,8 trillion when preparing its 2006 budget.

This year's turnover began rising over 2005's average monthly levels in May. The following month saw it positively surging.

Various factors suggest themselves when trying to explain this huge increase in bond market turnover. First was Reserve Bank governor Tito Mboweni's warnings about excessive borrowing by consumers. They were followed in June by the first of three increases in the Reserve Banks repo rate.

There was also, during May, a general risk-reward re-assessment by off-shore investors of emerging market portfolios, comparing the real rate of return on emerging market bonds to that of their own countries bonds.  This resulted in a flight-to-quality to developed market bonds which resulted in increased turnover in our own market during that time.

By end-October, off-shore investors were net buyers of South African cash bonds for the January-October period to the tune of R10,6 billion. By end-2005 they had been net sellers for the year of R5,6 billion.

Bond Exchange of South Africa