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Rand Strengthens to 2-Week High as Bonds Gain on Improved Export Prospects

February 24, 2012

The rand advanced to a two-week high, headed for a second five-day gain, and bonds rose amid signs the global economy is recovering, boosting prospects for South Africa’s exports.

South Africa’s currency appreciated as much as 1 percent to 7.5815 per dollar, the strongest since Feb. 10. It traded at 7.5831 as of 2 p.m. in Johannesburg, bringing its advance this week to 2.1 percent. The yield on the nation’s 6.75 percent bonds due 2021 declined 4 basis points, or 0.04 percentage point, to 7.84 percent, paring a 4 basis point rise this week.

Gross domestic product in Germany grew 1.5 percent in the fourth quarter from a year earlier, in line with economists’ expectations, the Federal Statistics Office said today. U.S. jobless claims held at a four-year low and a gauge of German business sentiment exceeded forecasts, reports showed yesterday. Germany and the U.S. together buy 14 percent of South Africa’s exports, according to government data for 2011.

“Global markets are performing a little better spurred by good German business confidence figures and data that shows the U.S. jobs environment remains strong,” John Cairns and Josina Solomons, currency strategists at Rand Merchant bank in Johannesburg, said in e-mailed comments. “The ground is now open for further rand gains.”

An index of commodity prices rose to an eight-month high and global emerging-market stocks gained today. Raw materials account for 64 percent of the country’s exports, according to government data. South Africa has the world’s biggest reserves of platinum, manganese and chrome.

The nation’s gross domestic product grew an annual 2.9 percent in the fourth quarter, compared with growth of 1.4 percent in the previous three months, a report on Feb. 28 will show, according to the median estimate of six economists in a Bloomberg survey.

Bond Risk

Credit default swaps for South Africa’s dollar-denominated sovereign bonds fell 6.8 basis points this week to 165.6 basis points today, the lowest since Oct. 28, according to data compiled by CMA, a unit of CME Group Inc. The contracts, which drop as perceptions of creditworthiness improve, traded below default swaps from higher-rated France and Israel at 190.3 and 188.1, respectively.

Bonds gained as investors bet the stronger rand will reduce the cost of imports, outweighing rising oil prices and curbing inflation in Africa’s biggest economy. Crude oil rose for a seventh day on concern escalating tension with Iran threatens supplies.

“The impact of a stronger rand in early 2012 has helped to offset some of the imported price pressures,” George Glynos, an economist at ETM Analytics in Johannesburg, said in e-mailed comments. “Expect a similar trend to hold in months ahead.”


South Africa’s consumer inflation rate rose to 6.3 percent in January, remaining outside the central bank’s target range for a third month and adding to pressure on Governor Gill Marcus to raise interest rates.

The central bank has left its benchmark repo rate at a 30- year low of 5.5 percent for 18 months to boost growth. The bank aims to keep inflation between 3 percent and 6 percent.

The nation’s $1.5 billion of 4.665 percent notes due 2024 gained, driving the yield down 1.5 basis points to 4.285 percent. The extra yield investors demand to hold the debt rather than U.S. Treasuries of similar maturity narrowed 1.5 basis points to 2.24 percentage points today. The spread has widened four basis points this week.

Forward-rate agreements starting in November, after the Monetary Policy Committee’s last meeting for 2011, rose 11 basis points to 5.92 percent this week, the highest since August, according to data compiled by Bloomberg.

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