National Treasury is paying R2 billion in interest on debt due to investors in 2030.
Image: File
National Treasury is set to pay more than R2 billion in interest to investors that have lent it money on one of South Africa's inflation-linked government bonds.
In a notice posted on the JSE’s Stock Exchange News Service, National Treasury said an interest payment of R2.02 billion would be made on 8 June on the R202 inflation-linked bond.
This interest payment will cover the past six months. While the bond's base interest rate is 3.45% a year, inflation adjustments pushed the effective rate for this period to 10.673%, resulting in a larger payout to investors.
These interest payments typically flow to pension funds, insurers, asset managers and other institutional investors that hold South African government bonds. Individual investors can also own the bonds, although they typically make up a much smaller share of holders.
The R202 is a government IOU that runs until December 2033. Investors lend money to the government and, in return, receive regular interest payments.
What makes the bond different is that it is linked to inflation. As the cost of living rises, the value of the investment and the interest paid to investors increase as well.
This helps protect investors from inflation eroding the value of their money over time, making the bond particularly popular with pension funds and other long-term investors.
The R202 pays a fixed annual coupon rate of 3.45%, but because that percentage is applied to inflation-adjusted capital, the actual cash payout rises over time as consumer prices increase.
These bonds are widely used by pension funds and institutional investors seeking to protect long-term savings from inflation and preserve purchasing power over time.
The R202 is one of several inflation-linked bonds issued by government as part of its broader borrowing programme.
Treasury regularly makes coupon payments to investors across its bond portfolio, with debt-service costs remaining one of the largest spending items in the national budget.
South Africa's gross government debt is expected to reach about 78.9% of gross domestic product this financial year, according to National Treasury. Put differently, government owes roughly 79c for every R1 generated by the economy annually.
IOL BUSINESS