Bloomberg News

South Africa Bonds Gain on Rate-Cut Bets, Global Growth Concern

September 01, 2011

Sept. 1 (Bloomberg) -- South African bonds rose, with the 10-year note extending the biggest monthly rally in a year, on speculation a slowing global economy will prompt the central bank to cut its key lending rate.

The government’s 10.5 percent notes due 2026 jumped 1 rand to 121.574 rand, driving the yield down 10 basis points, or 0.10 percentage point, to 8.022 percent, as of 5:07 p.m. in Johannesburg. South Africa’s 6.75 percent bonds due 2021 rose 81 cents to 93.408 rand, reducing the yield 13 basis points to 7.736 percent. Forward-rate agreements starting in February, which investors use to lock in interest rates, declined seven basis points, the most in more than a week, to 5.23 percent, the lowest on record, according to data compiled by Bloomberg.

A purchasing managers’ index showed that Europe’s manufacturing industry contracted in August more than initially estimated, U.K. manufacturing shrank the most in more than two years last month, while in China, a measure of the manufacturing industry stayed near the borderline between expansion and contraction. Chinese export orders fell for the first time in two years in August.

“The fall in exports will be worrying from a growth perspective and it suggests that manufacturing may struggle to recover in the second half of 2011,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw wrote in a report today. “To the extent that faltering U.K. and European growth hurts South African exports, so growth is going to suffer and that in turn should see bond markets remains well supported.”

Rand Weakens

The currency of Africa’s largest economy fell 0.6 percent to 7.0176 against the dollar, briefly paring declines after a report showed U.S. manufacturing unexpectedly expanded in August. The rand closed yesterday at a three-week high versus the U.S. currency.

South Africa’s purchasing managers’ index stayed below 50 for the second consecutive month in August, signaling a continued contraction in manufacturing, Kagiso Tiso Holdings said. The seasonally adjusted index gained for the first month in five, advancing to 46.7 from a two-year low of 44.2 in July, Johannesburg-based Kagiso said in an e-mailed statement today.

“Today’s data is negative for the rand on a gross domestic product differential basis,” Shireen Darmalingam, a Johannesburg-based economist at Standard Bank Group Ltd., wrote in an e-mailed note today. “Given the weight of the manufacturing sector in the economy at 15.5 percent, the outlook for the sector does not inspire optimism.”

--Editors: Ana Monteiro, Stephen Kirkland

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

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


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