An RSA Retail Savings Bond is a government of South Africa investment that pays fixed or inflation-linked interest over a certain period of time. RSA Retail Savings Bonds are offered in the following forms:
- The Fixed Rate Retail Savings Bond series includes bonds with periods of two, three, and five years. Fixed Rate Retail Savings Bonds pay a market-related fixed interest rate on interest payment dates until the bond matures. Each of the maturities in the series has a different interest rate.
- The Inflation Linked Retail Savings Bond series includes bonds with maturities of three years, five years, and ten years. The principal invested in Inflation Linked Retail Savings Bonds is adjusted for inflation over the period, and a floating interest rate is paid every six months on interest payment dates.
The minimum investment amount is R1,000.00, while the maximum investment amount is R5 million.
- Directly at the National Treasury, 240 Madiba Street, Pretoria, on the corner of Thabo Sehume and Madiba Streets.
Is it wise to invest in South African bonds?
South African bonds have the highest real yields in the world right now. Long-term local bond yields are up to 9.0 percent higher than comparable instruments in the United States and 11.0 percent higher than those in Europe.
The market’s assessment of the dangers to South Africa’s fiscal position is reflected in these yields. However, according to Philip Bradford (pictured), PortfolioMetrix’s South African head of investments, they are also providing investors with a major opportunity.
“My British counterparts are envious of our bond yields,” Bradford remarked. “Investing in SA bonds is a no-brainer for foreigners, but it’s a no-brainer for local investors.”
He argues that while considering the country’s risk considerations, South African investors are sometimes too “emotionally involved.” Foreign investors, on the other hand, are seeing through the hype and focusing on the opportunities against the risks.
Bradford, who runs the PortfolioMetrix BCI Dynamic Income fund, stated, “As a fund manager, you often have to swim upstream and go against what the normal investor would want to do.” “That includes buying local bonds when there’s difficulties, which we’ve done in the last several weeks.
“In a week or two, we moved from our lowest bond exposure ever to doubling it since markets had dropped off and we were able to lock in yields of roughly 11.5 percent for our investors.”
The yield on the 10-year government bond in South Africa increased from 8.4 percent in early February to roughly 9.6 percent by the end of March. Short-term gains were harmed when prices declined, and some investors expressed concerns about the asset class.
“Because the value of fixed-rate bonds fluctuates, investors prefer to see them through the same risk lens as equities.” But I have a different perspective on bonds. I’m well aware that a bond is completely mean reverting. If it does sell, I’m confident that the cash flow will continue to flow. It’s still a safe instrument to use. The capital value fluctuates, but I’m confident that it will recover by the time it matures.”
The contribution of capital returns to the overall return on the FTSE/JSE All Bond Index (Albi) over nearly 20 years is actually somewhat negative, as seen in the graph below. The income has provided the complete return.
Bloomberg and PortfolioMetrix are the sources for this information. All data is from December 31, 2002, through March 3, 2021, and returns are annualized. Total return of the FTSE/JSE All Bond Index. (To enlarge, click on the image.)
“You get a guaranteed revenue stream at a fixed rate with bonds,” Bradford explained. “And that’s what you’re going to get over time.”
“Because individuals have an equity perspective, they believe that a 5% drop in bond prices is a tragedy. If you acquire a ten percent yielding South African bond and the value of the bond drops by five percent over the course of a year, you still get a net five percent return. But the crucial thing is that you’ll get that 10% the following year, and then another 10% the following year. That capital will eventually return as well.
“This is one of the reasons why bonds are so misunderstood. “It’s because they’re so dull.”
He went on to say that when it comes to investing in local bonds, country-specific risks may be overstated.
“Obviously, there are fiscal dangers,” Bradford added. ‘However, if the situation in South Africa deteriorates significantly, bonds may not be the worst option. Our cash is the item that will give.”
And, in the past, when the rand has blown out, South African bonds have nonetheless managed to record positive returns.
“I believe we’re a long way from what would be considered a South African local currency debt default,” Bradford added. ‘However, I am certain that bonds would be balanced off against the currency in a diversified portfolio in such case.”
Bloomberg and PortfolioMetrix are the sources for this information. The data ranges from December 31, 2002, through December 31, 2020, and is calculated on a quarterly basis. (To enlarge, click on the image.)
Bradford also feels that, with yields at current levels, investors should concentrate on the longer-term opportunities.
“Your anticipated returns over five years are roughly 8.0 percent per year from present levels,” he stated. “Your best-case scenario yields north of 12.0%.” Even if bonds have a horrible year, you will almost certainly outperform cash over the course of a year and earn a positive real return. You will obtain equity-like returns if they have a strong year.”
Bloomberg and PortfolioMetrix are the sources for this information. The data ranges from December 31, 2002, through March 3, 2021, and is calculated on a daily basis. Total return of the FTSE/JSE All Bond Index. (To enlarge, click on the image.)
These high returns also allow income managers to build strategies that target specific outcomes without taking on too much risk.
“Because longer-dated yields are so high, you only need a small portion of your portfolio in them to generate a solid inflation-plus return,” Bradford explained. “If you give me R100 today and want a 6.0 percent return (inflation plus 3.0 percent), I can take R50 and buy one of the longer-dated bonds at a rate of 12 percent. You’ve already received your 6% bonus.
“That means I could put the rest of my money into bank floating-rate bonds, which would yield 4.0 percent to 6.0 percent, or I could just sit in cash.” The return will be smoother as a result of this. I can currently provide you 7.5 percent if you invest half of your money in fixed rate bonds and the remainder in cash.
“Using a flexible technique like this helps us to maintain a yield comparable to the Albi while keeping a significant amount in cash.” That implies we’ll be able to dodge a sell-off and instead invest to lock in greater rates.”
Patrick Cairns is the South Africa Editor of Citywire, a global source of information and analysis for professional investors.
Is it possible to acquire bonds on the JSE?
- Interest can be fixed, variable, or even zero, depending on the instrument.
- Because each loan has unique attributes that appeal to different investors at different periods, the secondary market for Government Bonds is lively.
- Government bonds are frequently regarded as a safer investment than corporate bonds.
- Bonds, both corporate and government, are thought to be less hazardous than stock purchases.
What are the best types of bonds to invest in?
Treasury bonds are often regarded as one of the safest investments in the world, if not the safest. They are deemed risk-free for all intents and purposes. (Note that they are risk-free in terms of credit, but not in terms of interest rate risk.) Bond prices and yields are usually compared to those of US Treasury bonds.
Do bonds make monthly payments?
Bond funds often own a variety of separate bonds with varying maturities, reducing the impact of a single bond’s performance if the issuer fails to pay interest or principal. Broad market bond funds, for example, are diversified across bond sectors, giving investors exposure to corporate, US government, government agency, and mortgage-backed bonds. Most bond funds have modest investment minimums, so you may receive a lot more diversification for a lot less money than if you bought individual bonds.
Before making investment selections, professional portfolio managers and analysts have the expertise and technology to investigate bond issuers’ creditworthiness and analyze market data. Individual security analysis, sector allocation, and yield curve appraisal are used by fund managers to determine which stocks to buy and sell.
Bond funds allow you to acquire and sell fund shares on a daily basis. Bond funds also allow you to reinvest income dividends automatically and make additional investments at any time.
Most bond funds pay a monthly dividend, though the amount varies depending on market conditions. Bond funds may be a good choice for investors looking for a steady, consistent income stream because of this aspect. If you don’t want the monthly income, you can have your dividends automatically reinvested in one of several dividend choices.
Municipal bond funds are popular among investors who want to lower their tax burden. Although municipal bond yields are normally lower than taxable bond fund yields, some investors in higher tax brackets may find that a tax-free municipal bond fund investment, rather than a taxable bond fund investment, provides a better after-tax yield. In most cases, tax-free investments are not suited for tax-advantaged accounts like IRAs.
In South Africa, which bank is best for investing?
In South Africa, which bank offers the best interest rates? Nedbank has the best fixed deposit rate for 2022, with a 10.60 percent effective interest rate, followed by Standard Bank with a 10.55 percent effective interest rate, and African Bank in third place with a 10.50 percent effective interest rate for a 60-month investment.
What are the drawbacks of holding government bonds?
Government bonds have the advantages of being more secure investments, having tax advantages, and allowing investors to support actual projects. A lower rate of return and interest rate risk are both disadvantages.
Are government bonds in South Africa tax-free?
In 2015, the government introduced tax-free investments as a way to encourage people to save.
The returns on these investments are not subject to income tax, dividend tax, or capital gains tax.
A maximum of R33 000 per tax year is allowed, with a lifetime limit of R500 000 per individual.
- ETFs that are categorised as collective investment schemes are exchange traded funds (ETFs).
For further information, speak with your bank or financial counselor. Existing accounts are not eligible for conversion.
In South Africa, how do government bonds work?
When you buy a government bond, you are essentially lending the government money for a set length of time. In exchange, the government would pay you a specified amount of interest, known as the coupon, at regular intervals. Bonds are classified as a fixed-income asset as a result of this.
You’ll get back to your original investment after the bond expires. The maturity date is the date on which you receive your original investment back. Varying bonds have different maturity dates; you may buy one that is due to mature in less than a year or one that is due to mature in 30 years or more.