Bloomberg News

Rand Gains Most in Month, Bond Yields Tumble on Euro Accord

October 27, 2011

Oct. 27 (Bloomberg) -- The rand surged the most in a month and bond yields tumbled to seven-week lows after European leaders agreed a plan to stem the region’s debt crisis, boosting investor appetite for riskier, emerging-market assets.

South Africa’s currency strengthened as much as 3.7 percent, the most in a day since Sept. 27. It traded 3.6 percent up at 7.7144 per dollar as of 3:59 p.m. in Johannesburg, the strongest on a closing basis since Sept. 29. Against the euro, the rand rose 1.5 percent to 10.8990, a two-week high. The yield on 6.75 percent bonds due 2021 dropped 16 basis points, or 0.16 percentage point, to 7.835 percent, the lowest since Sept. 9.

European leaders persuaded bondholders to take a 50 percent loss on Greek debt and boosted the firepower of the rescue fund to 1 trillion euros ($1.4 trillion), responding to global pressure to step up the fight against the financial crisis. The rand extended gains after a report said the U.S. economy expanded in the third quarter at the fastest pace in a year, fueled by consumer spending and business investment.

“It’s a pretty extreme relief rally on all fronts; it feels more like a trend reversal,” William van Rijn, a currency trader at Nedbank Group Ltd. in Johannesburg, said by phone. “The world can’t afford for anyone to fail at this stage.”

Copper gained as much as 5.6 percent, leading a rally in prices of metals and other raw materials. South Africa’s benchmark stock index soared to a three-month high, led by miners including Anglo American Plc and BHP Billiton Ltd. Mining accounts for half of South Africa’s export earnings, according to South African Revenue Service data.

Bond Demand

Foreign investors were net buyers of 1.4 billion rand ($179 million) of South African bonds yesterday, reversing an outflow of 892 million rand the previous day, according to the JSE Ltd. Demand for bonds rose after the government said on Oct. 25 it won’t increase domestic borrowing this year.

“Momentum remains higher for local bonds today,” Quinten Bertenshaw, a Johannesburg-based strategist at Tradition Analytics, wrote in a research note. The European agreement “could support a resumption of capital inflows from developed economies to emerging markets, and be bullish for local bonds”, he added.

Bonds remained higher after producer prices rose 10.5 percent in September from a year ago, compared with 9.6 percent in August. The median estimate of economists in a Bloomberg survey was for 10.4 percent.

--Editors: Ana Monteiro, Claudia Maedler

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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