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The SA Daily 05 June 2020

SA CDS at its lowest since March

Shireen Darmalingam

  • The mood in markets has lifted this week, with gains in global financial markets as many economies are re-opening. The rand has strengthened by 3.4% this month, albeit still down by 17.1% since January. SA’s credit default spread, a measure of risk in the economy, has, since hitting a fresh peak of 498 bps in early April, subsided to 281 bps this week. That April surge in South Africa’s 5-year USD CDS was due to both the COVID-19 pandemic and the downgrades of the sovereign by Moody’s, S&P, and Fitch.
  • SA’s CDS hovers above the EMBI when indexed to 100 in January 2015. (The EMBI is a benchmark index for measuring the total return performance of international government and corporate bonds issued by emerging market countries that meet specific liquidity and structural requirements.)
  • The CDS is around 286 bps now. Key risks, such as a pandemic’s impact on the global economy and poor SA growth fundamentals will keep the CDS under pressure in the coming months.
  • The CDS also remains vulnerable to further shocks should the pandemic’s impact on the global economy be protracted, which is the likely case. Indeed, the virus continues to spread, at more 100,000 global cases a day. New hotspots have emerged in emerging markets ranging from Latin America to India.
  • COVID-19 is taking a steep toll on SA, with 40,792 cases confirmed and 848 fatalities reported thus far. Around 3,297 new cases were reported yesterday, the highest daily increase on record as SA lockdown restrictions were eased to Level 3 on 1 June.

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