The rand led major-currency declines as metal prices fell, damping demand for shares in the nation’s mining companies. Bonds retreated, driving three-year yields to the highest in seven weeks.
South Africa’s currency depreciated 0.4 percent to 7.6288 per dollar as of 3:37 p.m. in Johannesburg. It weakened less than 0.l percent against the euro to 10.2137. The yield on the nation’s 65 billion rand of 13.5 percent bonds due 2015 climbed 2.5 basis points, or 0.025 percentage point, to 6.68 percent, the highest since Jan 9.
The Standard & Poor’s GSCI Index (SPGSCI) snapped a seven-day rally as metal prices, including copper and platinum slumped after the International Monetary Fund warned of a global slowdown in economic growth. South Africa’s benchmark stock index fell for the first time in three days, led by mining companies such as Anglo American Plc (AAL) and BHP Billiton Ltd. (BHP)
“Commodity currencies seem to be taking a hit,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The risk therefore is for some pullback” in the rand.
South Africa has the world’s biggest reserves of platinum, manganese and chromium, according to government data. Raw materials including metals account for 65 percent of the nation’s export, according to 2011 data from the government. The currencies of other commodity-exporting countries including Australia and Canada also declined.
The premium charged on options contracts to sell rand in three months over those to buy the currency increased to 3.80 basis points today, the highest since Jan. 25. Higher cost of selling the currency means more investors believe the rand will depreciate. The rand may depreciate to 8 per dollar by the end of the first quarter, according to the median forecast of 30 analysts in a Bloomberg survey.
Fixed-rate bonds declined, while inflation-linked securities gained, as investors bet rising oil prices will fuel inflation in Africa’s biggest economy, adding to pressure on the central bank to raise interest rates.
The premium investors demand to hold the nation’s $1.5 billion of 4.665 percent notes due 2024 rather than U.S. Treasuries widened four basis points to 2.34 percentage points, the most since Feb. 15.
The yield on 2.6 percent inflation-linked bonds due 2028 traded at 2.3 percent today, the lowest since Sept. 12. The five-year break-even rate, or yield difference between inflation-linked bonds and fixed-rate notes of similar maturity, increased 4 basis points today to 6.42 percent. The rate, a reflection of investors’ expectations for inflation, has widened from 6.14 percent on Feb 2.
Demand for inflation-linked bonds “is reflective of a higher demand for inflation cover, coinciding with an uptick on break-even rates,” George Glynos, an economist at Johannesburg- based ETM Analytics, wrote in e-mailed comments today. “The market continues to price the probability of rate hikes.”
Forward-rate agreements starting in November, after the central bank’s last monetary policy meeting for the year, climbed six basis points today to 5.93 percent, the highest since Aug. 3. The contracts imply an 80 percent chance of a 50 basis point rate increase this year, Glynos wrote.
South Africa’s consumer inflation rate rose to 6.3 percent in January, remaining higher than the 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.
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