May 25, 2004

By Sherilee Bridge

Johannesburg - Still tallying up the number of retail bonds sold through the post office, the national treasury said late yesterday evening that the first day's trade had gone "relatively well".

Thoraya Pandy, a spokesperson for the treasury, said investments with a collective value of R2 million were made via the internet.

She said the RSA Retail Bond website processed 100 applications from 140 registrations and 1 200 hits.

But she said the bulk of the uptake was expected to come from post offices, which would be providing figures this morning.

While treasury officials declined to give estimates on how big they expected the retail bond market to be, they are on record as saying that eventually they would like 10 percent of the government's total debt to be held by individuals.

Based on official data, this could be between R40 billion and R50 billion.

The bonds are offering attractive interest rates that are between 2 percent and 4 percent higher than those offered by most banks on similar-dated fixed deposit and money market accounts.

According to Personal Finance, the retail bonds' interest rates of 9.25 percent for a two-year investment term, 9.5 percent for three years and 10 percent for five years are "damned good" given that CPIX inflation (consumer price inflation less mortgage costs), is nearly 5 percent. 

A low-risk instrument promising a guaranteed return and no administrative charges, the bond was launched to entice everyday people to put their money into long-term savings.

Because each month's new issues will be repriced to reflect updated market conditions, interest rates are fixed for the period of investment on the day of purchase.

Most economists have predicted that interest rates will go up.

But what is sure is that the government, by launching its retail bonds at issue rates of between 9.2 percent and 10 percent, has thrown down the gauntlet to the banks to offer the public more competitive interest rates and lower investment costs.

The country's four major banks said last week that they would be adopting a wait-and-see- approach to the introduction of the retail bonds.

Depending on the uptake, the banks said they would reconsider their positions - particularly with regards to raising interest rates on fixed deposit accounts.