Bloomberg News

South Africa Yields Drop to 7-Month Lows Before Debt Auction

August 01, 2011

Aug. 1 (Bloomberg) -- South African bond yields fell to the lowest in almost seven months before tomorrow’s government debt auction on speculation the central bank will leave borrowing costs unchanged this year to support a recovery in Africa’s biggest economy.

The Pretoria-based Reserve Bank is selling 1.3 billion rand ($195 million) of 8.25 percent bonds maturing in 2017, and 800 million rand of 7 percent notes due 2031, according to central bank information on Bloomberg. The secondary-market yield on the 2017 bonds dropped 11 basis points, or 0.11 percentage point, to 7.82 percent, the lowest since Jan. 7.

The Reserve Bank left its benchmark interest rate unchanged on July 21 for a fourth consecutive meeting after cutting it three times last year to 5.5 percent, even as inflation rose at the highest rate in 15 months in May. The Monetary Policy Committee said growth in Africa’s largest economy was “fragile.”

“The Reserve Bank will remain cautious of hiking interest rates at present,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in a research note. “This will tend to keep local bonds supported.”

South Africa’s purchasing managers’ index declined to a two-year low in July as “prolonged” strikes curbed manufacturing operations in the continent’s biggest economy, Kagiso Tiso Holdings said today. On July 29, the Pretoria-based Reserve Bank reported credit growth was little changed at 5.25 percent in June as rising unemployment damped consumer spending.

‘Pronounced Moderation’

“The mounting evidence of a pronounced moderation in economic growth tempo still, for now, outweighs the risks posed by rising inflation,” Nomvuyo Guma, an analyst at Johannesburg- based Standard Bank Group Ltd., wrote in a research note. “Our view that interest rates will remain unchanged this year still stands.”

Forward-rate agreements starting in December dropped 1.5 basis points today to 5.75 percent, indicating traders see less chance of an interest-rate increase in November, when the Monetary Policy Committee meets for the last time this year. The rate has declined from 5.96 a month ago.

Tomorrow’s debt auction starts at 11 a.m. local time and results will be announced at about 11:30 a.m.

--Editor: 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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