In May, after Treasury lowered the interest rate by 50 basis points, the two-year fixed-rate retail bond had an interest rate of 6.75%, the three-year bond was on 7% and the five-year bond 7.5%.

The recent cut in the rates by National Treasury now brings the 2-year fixed rate down to only 6%, the three year rate on 6.5% and the five-year rate on 7%.

If you’re in it for the short term, the rate at which interest is accrued has been cut by 0.75 of a percentage point. The longer-term investors only lose 0.5 of a percentage point.

Monale Ratsoma, chief director of liabilities at National Treasury, told Moneyweb that investors should not get confused about the rate for the Retail Bonds.

“I should clarify that the retail bonds rates are not linked to the repo rate but to the government wholesale bonds yield curve,” he said.

Last month the South African Reserve Bank lowered the repo rate by 50 basis points.

The pricing of the retail bonds are in fact linked to the yield curve of all the government bonds, such as the R157, and if these yields are lower, the rate for the retail bonds also have to be adjusted.

Ratsoma explained that the wholesale (bonds yield) curve has rallied more than the repo rate in the short dated instruments hence the 0.75 reduction for the two-year fixed-rate retail bond. 

In May of this year Ratsoma indicated that the retail bond products have brought in R12bn from about 49 000 retail investors.

Treasury launched the RSA Retail Savings Bonds in 2004 to encourage households to save.

Two bonds are on offer, the fixed interest option and an inflation linked bond that is protected against inflation.

With the Retail Savings bond you don’t pay any commission or agency service fees and it has guaranteed returns.

 – jeanette@moneyweb.co.za