Bloomberg News

Rand Falls, Yields Rise as Moody’s Cuts S. Africa Rating Outlook

November 09, 2011

Nov. 9 (Bloomberg) -- South Africa’s rand led a drop among major currencies against the dollar and bond yields surged as Moody’s Investors Service cut its outlook on the nation’s sovereign-debt rating, citing deficit and growth concerns.

The rand reversed an earlier gain, weakening 1.5 percent to 7.9809 per dollar by 12:13 p.m. in Johannesburg, the worst performance out of 16 major currencies monitored by Bloomberg. The yield on 13.5 percent securities due 2015 climbed 10 basis points, or 0.1 percentage point, to 6.48 percent. The extra yield investors demand to buy South Africa’s $2 billion of 5.5 percent bonds due 2020 over U.S. Treasuries of similar maturity widened 15 basis points to 1.75 percentage points.

Moody’s reduced the outlook on South Africa’s A3 rating on long-term foreign-currency and local-currency debt, the fourth- lowest investment grade, on increasing risk that commitment to low budget deficits could be undermined by popular pressure, and on expectations that growth will be slower than previously estimated.

“Lowering the outlook is generally a precursor to a credit downgrade, which would certainly be a risk to inflows into the bond market,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd. said by phone. “You’ve already seen the reaction in the markets.”

Moody’s rates South Africa’s debt one level higher than Standard & Poor’s and Fitch Ratings, which both have a BBB+ rating, with a stable outlook, for the nation’s foreign-currency debt. South Africa’s rising debt levels aren’t a threat to the country’s rating by Standard & Poor’s, Business Day reported today, citing Christian Esters, an analyst for sub-Saharan Africa with the company.

Italy Risk, Rand

The rand extended its decline as Italy’s borrowing costs surged, indicating investors aren’t convinced Premier Silvio Berlusconi’s promise to resign will help Europe’s third-largest economy solve its debt crisis.

Italian five-year notes slid, pushing the yield to more than 7 percent for the first time since the euro was introduced in 1999. The cost of insuring Italy’s government debt rose 12 basis points to a record 536, according to CMA prices.

“Our market’s direction is influenced by the weakening of Italian bond yields,” Michael Grobler, a Cape Town-based fixed- income analyst at Afrifocus Securities said in an e-mailed response to questions by Bloomberg News. The Moody’s outlook cut “is a setback for the current bond rally,” he added.

--Editors: Ana Monteiro, Peter Branton

To contact the reporter on this story: Robert Brand in Cape Town at

To contact the editor responsible for this story: Gavin Serkin at

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