Bloomberg News

Rand Weakens for Second Day as EU Leaders Meet on Debt Crisis

October 26, 2011

Oct. 26 (Bloomberg) -- The rand declined for a second day as concern European leaders will fail to resolve the region’s debt crisis at a summit today boosted demand for the safety of the dollar.

South Africa’s currency retreated as much as 1.4 percent, and traded 1.3 percent weaker at 8.0053 per dollar as of 5:31 p.m. in Johannesburg, making it the worst performer among major peers today, according to data compiled by Bloomberg.

The U.S. currency gained against all except one of its 16 most-traded counterparts after reports that talks on losses for Greece’s bondholders have stalled. The European Union is seeking voluntary participation by banks in a second bailout package for Greece, though a forced solution can’t be ruled out, an EU official said in Brussels today on condition of anonymity because the talks are private.

“Investors are reluctant to sell dollars too aggressively until they understand or have some clarity on how the euro-zone bail-out mechanism is going to work,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in e-mailed comments. Currency traders “are justifiably not adopting any significant direction at this point and prefer to take to the side lines until clarity is offered,” they wrote.

Bonds gained for a second day, driving 10-year yields to the lowest in five weeks, after the Treasury lowered its growth forecast and said it won’t sell more bonds even as the budget deficit widens.

The 6.75 percent securities due 2021 climbed 16 cents to 92.01 rand, pushing the yield down one basis point, or 0.01 percentage point, to 7.98 percent, the lowest since Sept. 16. The yield has dropped 11 basis points in the past two days.

Deficit Widening

South Africa’s fiscal gap will widen to 5.5 percent of gross domestic product in the year through March 2012, from a revised 4.6 percent last year, Finance Minister Pravin Gordhan said in his mid-term budget statement to lawmakers in Cape Town yesterday. The government cut its growth forecast for 2012 to 3.4 percent, from 4.1 percent. Borrowing plans will remain unchanged this year as the government draws down cash balances.

“Given the poor growth outlook as well as the assurances from Gordhan that increased issuance will not be likely, we think that the belly of the curve could perform well in the coming weeks,” Bartosz Pawlowksi, BNP Paribas SA’s head of fixed-income and foreign-exchange strategy for central and eastern Europe, the Middle East and Africa in London, wrote in an e-mailed comment.

--Editors: Ana Monteiro, Linda Shen

To contact the reporters on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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


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