Bloomberg News

Rand Gains as Risk Aversion Subsides; Bonds Rise Rate Outlook

June 30, 2011

June 30 (Bloomberg) -- The rand rose against the dollar for a fourth day as chances of a default by Greece subsided, boosting demand for riskier assets. Bonds gained as credit and inflation data spurred bets rates won’t rise this year.

The currency of Africa’s largest economy appreciated as much as 1.1 percent to 6.7527 per dollar, and traded 0.8 percent stronger at 6.7703 as of 4:02 p.m. in Johannesburg, paring its decline against the dollar in the first six months to 2.4 percent, the only one to retreat out of 16 major currencies monitored by Bloomberg. The rand climbed 0.4 percent to 9.8020 per euro, paring its drop versus the 17-nation currency in the first six months to 9.4 percent.

Emerging-market stocks rallied to a three-week high, metal prices increased for a third day and the euro strengthened against the dollar after Greek Prime Minister George Papandreou won parliamentary support for budget cuts. German banks have agreed to roll over at least 2 billion euros ($2.9 billion) of Greek debt holdings, German Finance Minister Wolfgang Schaeuble said today. South African stocks climbed to the highest since June 2.

“Risk appetite has returned and boosted the performance of equity markets and emerging-market currencies alike,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw wrote in a research note. “The dollar finds itself firmly on the defensive.”

Forty-five percent of South Africa’s exports are bought with euros.

“It’s only this morning that the positive sentiment is starting to be reflected, with euro-dollar breaking past 1.45 and dollar-rand into the 6.70s,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, wrote in a research note.

Household Borrowing

The rand pared its gain after South African credit data for May prompted traders to reduce bets on an interest-rate increase this year. Borrowing by households and businesses rose an annual 5.2 percent, down from 6.2 percent in April, the Reserve Bank said on its website today. The median estimate of 15 economists surveyed by Bloomberg was 6.3 percent.

Forward-rate agreements effective in November, which investors use to lock in interest rates, dropped six basis points, or 0.06 percentage point, to 5.94 percent today. The contracts were as high as 6.05 percent two weeks ago.

The credit and producer-price data “reinforce our view that the first increase in interest rates will occur only in the first quarter of 2012,” Nomvuyo Guma, a Johannesburg-based analyst at Standard Bank Group Ltd., Africa’s biggest rand trader, said in a research note. “This could be seen as rand negative from an interest-rate differential standpoint.”

Bonds

Bonds advanced for the first day in three. The 13.5 percent notes due 2015 jumped 8 cents to 121.31 rand, driving the yield down two basis points, or 0.05 percentage point, to 7.47 percent. The 6.75 percent securities due 2021 climbed 26 cents to 89.18 rand, cutting the yield four basis points to 8.38 percent.

Foreign investors bought a net 1.66 billion rand ($245 million) of South African bonds yesterday, bringing their purchases this quarter to 43 billion rand, according to JSE Ltd.

--Editors: John Kohut, Ana Monteiro, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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