The cost of insuring South Africa’s debt against non-payment dropped to the lowest in 13 months this week, even as a funding crisis at Eskom Holdings SOC Ltd. strains government finances while the economy struggles to recover from the worst quarterly contraction since the 2008 financial crisis.
South Africa’s economy hasn’t expanded by more than 2% a year since 2013, and endured recessions in 2009 and 2018. There’s a chance it may be headed for another after the first-quarter contraction. Turkey’s economy emerged from a recession in the first quarter. The blow-out could extend to bonds. Benchmark government bond yields are around the lowest since April 2018, leaving plenty of scope for a reversal in the event of a Moody’s downgrade, which would spark a sell-off by funds that track investment-grade indexes.