Bloomberg News

Rand Rebounds, Bonds Gain on ECB Bond Purchases, Rates Outlook

November 17, 2011

Nov. 16 (Bloomberg) -- The rand gained for the first day in three, rebounding from a four-week low against the dollar, and bonds snapped five days of losses after the European Central Bank bought Spanish and Italian debt, boosting risk appetite.

The rand strengthened 0.4 percent to 8.1454 per dollar as of 2:33 p.m. in Johannesburg, after retreating earlier today to the weakest level since Oct. 20. The yield on 6.75 percent securities due 2021 dropped six basis points, or 0.06 percentage point, to 8.02 percent, paring a 31-basis-points climb over the previous five days.

The ECB’s bond purchases came after Italian 10-year yields rose above 7 percent, the level where Greece, Portugal and Ireland needed a bailout, and the extra yield investors demanded to hold Spanish, French and Austrian debt instead of German bunds rose to a euro-era record yesterday.

“The more aggressive the ECB is, the calmer investors will be, and that has positive implications for the local market,” George Glynos, a Johannesburg-based analyst at Econometrix Treasury Management, said by phone. “A lot rests on the ECB.” Europe, he said.

The ECB bought larger-than-usual sizes and quantities of the Italian debt, said two people with knowledge of the trades, who declined to be identified because the deals are private. Central bank press officers couldn’t immediately be reached for comment when called by Bloomberg News.

Retail Sales

The rand and bonds held onto gains after retail sales growth unexpectedly accelerated to 8.3 percent in September, fueling speculation the central bank won’t lower borrowing costs after leaving its benchmark rate at a 35-year low on Nov. 10.

The central bank would focus bringing inflation into its 3 percent to 6 percent target range “over the medium term”, even as it stood ready take “appropriate” action to support the economy, Governor Gill Marcus said yesterday. Inflation will breach the target in this quarter and peak in the first quarter of 2012, Marcus said on Nov. 10.

“Clearly, the latest retail report would argue against a cut in interest rates,” Kevin Lings, a Johannesburg-based economist at Stanlib Asset Management Ltd., wrote in e-mailed comments.

--Editors: Peter Branton, Linda Shen

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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