emerging markets. in addition, it also implies more dedicated bond inflows into our market, possibly of a more lasting nature. another area of the bond market, which has seen significant issuance over the years, is that of the eurorand bond market. the demand for randdenominated bonds issued by highly rated nonresident institutions contributes positively to the value of both the rand and domestic bonds. the government debt consolidation process has allowed the cost of borrowing to decline markedly. sound debt management has been such that new issuance is spread across the maturity spectrum of the yield curve. the bond market has become a more appealing corporate finance tool and, as such, corporate listings have become more popular. since the very first listing of a corporate bond ( south african breweries ) in 1994, the corporate bond market has increased considerably in size. innovation in this sector has been impressive – from issuance of vanilla bonds to securitisations and commercial paper. not only do these innovations offer debt at lower interest rates than vanilla bonds, but also provide lower income groups with access to home mortgage finance. the introduction of inflation - linked government bonds in 2000 was a further significant innovation and is quite helpful in providing monetary policymakers and analysts with important information on inflation expectations through readings of the so - called breakeven inflation rate. whilst much has been achieved, there are still many opportunities and challenges ahead. non - government bond issuance has increased sharply ; however, banks continue to account for the bulk of this issuance. in addition, the buy - and - hold approach to corporate bonds and inflation - linked bonds, in particular, renders these segments of the bond market relatively illiquid. the municipal bond market is still in a developing stage but can certainly contribute to enhancing the breadth and depth of the domestic bond market. finally, the significant amount of infrastructure spending planned for the next few years is likely to boost the supply of corporate bonds and therefore increase liquidity in this market. the corporate bond market has increased in size from accounting for 5 per cent of the total bond market at the end of 2001 to almost 30 per cent today. this increase in corporate sector issuance was mainly due to the reduction in the supply of government bonds, lower financing costs and an upbeat corporate sector. in 2006, net issuance in the nongovernment sector amounted to r41, 0 billion ( excluding securitised assets ). net issuance emanated mainly from the corporate sector, with only

the universal exchange corporation ltd ( unexcor ) serving as the clearing house. the rule book and the principles underlying the operation of the market were approved in march 1996 and besa was licensed ( and started ) to trade on 15 may 1996. some major developments subsequent to this time include the introduction of electronic trading, matching and settlement ; the immobilisation and later, dematerialisation of bonds listed on besa, the development of a series of total - return indices for government and corporate bonds and the development of a more refined yield curve. since the late 1990s, the south african bond market has increased in depth and sophistication. developments include the introduction of inflation - linked bonds, floating rate notes, a strip programme ( an acronym for separate trading of registered interest and principal ), retail bonds and municipal bonds. the corporate bond market has also grown substantially from net issuance of more than r10 billion in 2001 to net issuance of almost r70 billion in 2006. see jacobs, aj ( 1988 ). the south african bond market. report by the committee appointed to examine the market for public sector securities. may. the development of the corporate bond market has been assisted by the decline in issuance of government bonds, a low interest rate environment – at least in relative terms -, mergers and acquisitions, the narrowing of spreads and improved liquidity. significant also has been the expansion of the regional dimension of this market with the raising, by the mauritius commercial bank, of r350 million – the first inward - listed bond to be raised by a nonresident in south africa. regarding sophistication, it is the case that the role of the sarb has changed. in the past, the sarb served as an underwriter and then as a market - maker, quoting two - way prices in the secondary bond market. these activities ended in 1998 when the government adopted a system of regular, weekly, pre - announced auctions. a panel of 12 primary dealers – all being banks – was appointed to participate in the auctions which were, and still are, conducted by the sarb. 2 3. the current conjuncture the introduction of the global bond index emerging markets ( gbiem + ) by jp morgan, which tracks changes in emerging - market local - currency bond prices, has been particularly helpful to south africa, given that most of the country ’ s debt is denominated in local currency, contrary to the practice in most other