T Mboweni: Spire Awards ceremony of Bond Exchange of South
Africa

26 October 2006

Honoured guests,
Nominees, their colleagues and treasurers,
Members of BESA,
Members of the press,
Sponsors of the Spire Awards and organisers of this prestigious event:

1. Introduction

Time flies and once again we gather here tonight to celebrate another
successful year in the South African bond market, filled with vigorous activity
and continuous innovation. In celebrating this we again have an opportunity to
recognise those individuals and organisations for which 2006 was a particularly
fruitful year of outstanding achievement. I wish to extend my sincere
congratulations to the winners of the awards handed out tonight. It is the
dedication and hard work of professionals such as yourselves who contribute to
the success of the bond market, which counts among the most developed and
liquid in the emerging market arena.

However, allow me also to congratulate all the nominees whether they receive
a trophy or not as well as those who have looked beyond themselves and their
own interests to nominate others and those who have worked unobserved in the
background, supporting and contributing to the successes of the winners. A
special word of appreciation to the BESA for hosting this event and
acknowledging excellence in our bond market is also fitting.

2. Significance of the Spire Awards - embracing the nature of markets

Tonight marks the fifth year of Spire Awards. According to the description
of BESA these awards "recognise those individuals and teams who have used
talent, intelligence and commitment to contribute to the bond market in South
Africa". The award categories have also been expanded this year to cover the
entire value chain of the debt market from borrower to broker, research to
sales, origination to media reporting.

While preparing this speech a particular aspect of the description of BESA
of the Spire Awards struck me, namely how it encompasses both the collective
and competitive nature of markets; two characteristics that seem to contradict
each other yet cannot be separated. Allow me to share some views on this.

Markets, as we know, are inherently interdependent. Although many
individuals, individual teams or individual organisations are rewarded for
their excellence tonight the very concept of a market is a collective one, 'no
deal can be matched without an opposite position, there cannot be a sale
without a purchase, a trade cannot be effected if it is not settled, no
settlement can take place without a clearing system, no money can flow without
a banking system or a national payments system'. Each individual participant in
the market provides a source of demand, supply, pricing, research, technical
support and innovation. People and organisations rely on each other to trade,
to make profits, to earn fees, to provide information and to provide
opportunities to excel.

This interdependence is finely balanced. Whenever one individual, one team
or one organisation starts to permanently dominate a market the system tends to
become inefficient. In such circumstances markets may become merely a mechanism
to advance the interests of individuals or members of a select group at the
expense of the broader community.

I commend BESA for making the categories for the Spire Awards broad enough
to acknowledge a wide variety of market participants in various areas to ensure
that different kinds of contributions are recognised and to give opportunities
to both newcomers and veterans to make their mark. The awards strive to give
recognition to those who have used their talent, commitment and hard work not
only for their own benefit but to the benefit of their clients, their
organisations, the bond market as a whole and even the country at large.

However, although market participants are heavily dependent on each other
they also have to be competitive. It would be very naive to expect financial
market participants to trade for the altruistic purpose of promoting the
broader market. Naturally everybody is in the game to win and not everybody can
be on the winning side one trader's profit is usually another's loss. It is the
competitive nature of markets that contributes to their efficiency as each
market participant tries to outsmart the other, the market as a whole becomes
more innovative information is disseminated more efficiently and is better
analysed, the quality of service improves, costs are lowered and communication
improves. The key is as with most things to balance competition and
co-operation to the benefit of the wider community.

3. Recent developments and outlook for the domestic bond market

Well-functioning and efficient capital markets are an important element in
economic development. They facilitate the mobilisation of capital to be
channelled to job-creating business enterprises, long-term infrastructure
development and social upliftment. They contribute to the development of the
financial system as a whole and play an important role in attracting foreign
investment. Liquid and efficient capital markets lower the cost of funding,
making many more projects viable and contributing to overall economic growth.
South Africa is fortunate to benefit from a relatively deep and broad bond
market which is increasingly accessed by non-government institutions. In this
respect BESA has played an invaluable role.

I would refrain from giving a detailed overview of recent developments in
the domestic bond market to such a well-informed audience as we have here
tonight. Suffice to say that the domestic bond market has enjoyed a long and
almost uninterrupted rally over the past few years with yields on the benchmark
government bonds breaking a succession of record lows until the first quarter
of this year. Yields have subsequently risen somewhat in line with the tighter
monetary policy stance taken by the South African Reserve Bank (SARB) since
June 2006 and some re-pricing of emerging market risk in global markets.

However, despite this recent re-tracement, I believe that we have entered a
period of structurally lower yields due to a number of fundamental factors. The
most obvious one that springs to mind is the continued fiscal discipline of the
government which has significantly reduced the budget deficit and borrowing
requirement. The lower issuance of government bonds provides some space for
corporate and parastatal entities to raise capital. In addition South Africa
enjoys a higher credit rating than it did in the past, partly due to the
efforts to increase the country's official gold and foreign exchange reserves
to levels more comparable to those of our peers.

A third and very important factor that can be mentioned is that the Consumer
Price Index excluding interests rates on mortgage bonds (CPIX) inflation rate
has been within the target band of between three and six percent since
September 2003. The inflation targeting framework adopted by South Africa in
2000 has succeeded in anchoring inflation expectations and as a result
long-term bond yields are likely to remain at moderate levels. It is with this
in mind that many issuers have found it particularly attractive to issue at the
long end of the curve.

We are all acutely aware of the risks facing our current inflation outlook
which has convinced the Monetary Policy Committee (MPC) of the SARB to increase
the repo rate by 150 basis points since June 2006. These risks have, once
again, been highlighted in the latest statement of the MPC. Nevertheless, I
believe that the structural and fundamental factors providing strength to the
domestic bond market should continue to support economic growth and weather the
storms of financial market volatility globally despite the shorter term noise
of interest rate cycles or cyclical changes in investor sentiment and risk
appetite globally. There are also a number of initiatives underway in terms of
new products and processes which shows that the bond market remains dynamic and
is keeping pace with international trends.

In the year to the end of September 2006, turnover on BESA surpassed the R10
trillion mark already exceeding the R9,8 trillion turnover in 2005. Around 20
percent of this turnover can be attributed to transactions with non-residents.
Over recent years the net sales and purchases of South African bonds by
non-residents add up to a more or less neutral position therefore not making a
significant contribution to the financing of the current account deficit over a
medium-term horizon. In fact net equity purchases account for the bulk of South
Africa's foreign portfolio investment inflows over time. Still, in the year to
mid October, non-residents have been net buyers of around R18 billion worth of
South African bonds. In addition non-residents contribute significantly to the
liquidity of the domestic bond market in that way improving market depth and
encouraging the continued development and innovation in our market.

However, as an open emerging market economy we are always vulnerable to
changes in international sentiment and cannot afford to be too complacent. In
addition to risks emanating from our own economy, South African financial
markets are also subject to external factors over which the country has very
little control. Let us not forget that the global economy is still flush with
liquidity that the risk premia priced into riskier assets such as equities and
emerging market assets are still relatively low for most emerging markets,
despite some re-pricing during 2006 and that monetary policy in the developed
world and at home cannot currently be described as tight by historical
standards. In addition the appetite for South African financial assets is to a
large extent influenced by developments in global bond and equity markets with
definite risks for our own balance of payments position. Monetary policy has to
take cognisance of these global effects which could potentially lower the
demand of non-residents for South African financial assets and in turn affect
the exchange rate and ultimately inflation.

4. Conclusion

Despite this note of caution, I believe we have much to celebrate tonight
and I shall not delay it any longer.

Let me conclude then by once again congratulating all the deserving nominees
present and by wishing you all a similarly prosperous and successful year in
2007.

Issued by: South African Reserve Bank
26 October 2006
Source: South African Reserve Bank (http://www.reservebank.co.za/)