Bloomberg News

Rand, Bonds Extend Gains as ECB Acts to Ease Liquidity Concern

September 15, 2011

Sept. 15 (Bloomberg) -- South Africa’s rand extended gains and bond yields fell after the European Central Bank said it will lend dollars to European lenders to ensure they have enough of the U.S. currency through the end of the year.

The rand advanced as much as 1.3 percent to 7.3146 per dollar, and traded 0.7 percent stronger at 7.3608 per dollar as of 4:14 p.m. in Johannesburg. The 13.5 percent bonds due 2015 climbed 68 cents to 123.12 rand, driving the yield up 18 basis points, or 0.18 percentage point, to 6.785 percent.

The ECB said it will conduct liquidity operations in concert with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank. Investor concern that Europe’s debt crisis will cause a funding shortfall for euro- region banks had sapped demand for riskier assets.

“This is definitely a short-term positive for the rand and bonds,” Nema Ramkhelawan-Bhana a currency strategist at Rand Merchant Bank in Johannesburg, said by phone. “The fact that they have to provide dollar funding is an indication of bank stress,” which helped drive the rand to a one-month low on Sept. 13 as investors shunned riskier assets.

The euro strengthened against the dollar after the announcement in Frankfurt. Two banks this week borrowed the U.S. currency from the ECB in its regular seven-day operation, a sign they are finding it difficult to gain access to the U.S. currency in markets.

Earlier, bonds gained and the rand advanced versus the dollar after German and French leaders said they’re certain Greece will remain in the euro zone.

Aversion Subsides

“The news would have gone some way to restoring confidence,” Tradition Analytics strategists led by Johannesburg-based Quinten Bertenshaw said in a research note. “Levels of risk aversion have subsided” though “the euro zone is not out of the woods yet”, they added.

South African bonds gained, paring the biggest five-day drop since October 2008 as investors sold high-yielding assets on concern Europe’s debt crisis will raise borrowing costs for the region’s banks.

Global investors sold a net 10.8 billion rand ($1.5 billion) of South African stocks and bonds in the first three days of this week, according to JSE Ltd. data. The European Central Bank said on Sept. 14 it will lend dollars to two euro- area banks, a sign they are finding it difficult to borrow in the U.S. currency markets, while Credit Agricole SA and Societe Generale SA had their long-term credit ratings cut one level by Moody’s Investors Service.

--Editors: Ana Monteiro, Peter Branton

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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