Bloomberg News

Bonds Rise as Traders Pare Rate Bets; Rand Gains on Debt Deal

July 22, 2011

July 22 (Bloomberg) -- South African bonds rose, driving four-year yields to six-month lows, as investors pared bets on an interest-rate rise this year. The rand gained for a fourth day after European leaders agreed on a bail-out plan for Greece.

The 13.5 percent notes due 2015 increased 11 cents to 121.57 rand at 9:32 a.m. in Johannesburg, pushing the yield down three basis points, or 0.03 percentage point, to 7.34 percent, the lowest since Jan. 7. The rand added 0.3 percent to 6.7593 per dollar, bringing its gain this week to 1.7 percent.

South Africa’s Reserve Bank yesterday left its benchmark interest rate unchanged, citing a fragile recovery in Africa’s biggest economy, even as it predicted inflation will breach its 6 percent target this year. Forward-rate agreements starting in December have declined eight basis points to 5.80 percent in the past two days as traders reduce bets on a rate increase at the November Monetary Policy Committee meeting, the last for 2011.

“Foreign investors will continue to find value in bidding local bonds with the view that the Reserve Bank will shy away from tightening soon,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in a research note.

Foreign investors bought 1.05 billion rand ($155 million) of South African bonds yesterday, adding to 40.6 billion rand of bond purchases this year, according to data from JSE Ltd., which runs the country’s bond exchange.

The rand advanced to its strongest level in two weeks on a closing basis after European leaders pledged more aid for Greece and persuaded bondholders to shoulder some of the debt, bolstering demand for riskier, emerging-market assets.

“Investors can once again focus on extracting yield from riskier assets,” Tradition said. “This becomes the kind of environment where the rand holds the potential to rally.”

--Editors: John Kohut, Ana Monteiro

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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