Very few takers for South Africa's CPI-linked bond sale

South Africa’s Treasury managed to sell about 11% of the inflation-linked bonds on offer at Friday’s auction, the second time in under two months the instruments have failed to attract much interest.

“With the move in nominal yields so much higher this week, I think linkers look expensive compared to nominal yields,” said Deon Kohlmeyer, a fixed-income specialist at RMB.

Inflation-linked securities link their coupon payments to inflation rates, whilst a nominal yield offers buyers a fixed rate of interest over the duration of the bond.

“This is the second ILB auction that has been a flop one-and-a-half months into the fiscal year,” Investec trader Steve Arnold told Reuters.

Treasury’s March 27 auction of CPI-linked paper managed to raise 250 million rand of the 800 million rand on offer.

In its February budget review, the Treasury said it planned to gradually reduce the weight of inflation-linked bonds in its portfolio to ensure that its debt portfolio was maintained “within manageable parameters“.