Mayhem, but risk of default drops 4% - go figure

ZIRP, meet NIRP. Funny how a Zero Interest Rate Policy, in place across the Western world since the dog days of 2008, can morph into its much more sexy twin sister: a Negative Interest Rate Policy.

The ramification of all this cheaply available money is that it has to find a decent return somewhere - and there is not a great deal of appeal in paying a sovereign nation money to lend it money (by buying its bonds and "earning" negative interest).

So where does all that cash go? And where is it likely to continue to go, since pigs will fly before Japan, the US, UK, Switzerland and the eurozone raise their interest rates?

Here, right here, into South African stocks and bonds. And it's not leaving any time soon.

In April last year I printed out a graph of the benchmark R157 government bond. Since June 2008 it had appreciated from a yield north of 10.5% to nearer 7.5%. That is a massive capital gain for offshore investors faced with zero, soon to be negative, returns in their domestic markets.

After April 2011, the yield on the R157 plunged even further. On Friday it was yielding just 5.5%. Bond prices work in inverse proportion to their yields, so plenty of foreign fixed-interest investors have taken a shine to pouring hard currency into good old SA.

And, lest we forget in our excitement, falling yields mean government has been borrowing at cheaper and cheaper rates for the past four years - funding all of those nice things Trevor Manuel speaks about in his plan. If borrowing rates weren't so cheap, you can be sure the minister of finance would be looking a lot harder at our relatively benign tax regime.

I was away last week, and expected to return to see the JSE drenched in red and bonds shot to hell. Instead, the All Share index hit a new record and the price of the R157 continued to rip higher.

Seen with the ghoulish, dispassionate eyes of Mr Market, supply constraints in SA, the world's top platinum producer, caused the precious metal to rise 5%. But who among us doesn't think it all just a little bit creepy? I even read an analyst's report saying Lonmin shares "looked cheap".

All those people dead, the political and labour establishment in crisis and South Africa's credit rating actually improved. On Tuesday, London's Credit Market Analysis, which tracks the prices of credit default swaps, recorded that our country's risk of default lessened by 4% on the previous week. What gives?

Right now, ours is not to reason why. Nobody ever said there was such a thing as ethics or a moral code in the business of making money.