Bloomberg News

Rand Surges as Yields Fall Most in 3 Years on Citi Index

April 17, 2012

South African 10-year yields fell the most in more than three years and the rand led emerging- market currency gains after Citigroup Inc. said the nation’s government bonds may be included in its global index.

The yield on the nation’s 6.75 percent bonds due 2021 dropped 21 basis points to 7.73 percent, the lowest since Feb. 3 and the biggest one-day decline since December 17, 2008, according to data compiled by Bloomberg. South Africa’s currency surged 1.5 percent to 7.8222 per dollar as of 3:37 p.m. in Johannesburg.

The South African Government Bond Index met all requirements for inclusion in the World Government Bond Index in April, and will be included in the gauge from October if it meets needs in May and June, New York-based Citigroup said in an e-mailed statement. Inclusion in the index, a first for the continent, may fuel demand from investors who track the gauge, attracting as much as $7.5 billion to the nation’s bond market, according to Citigroup data.

“Long-term it’s obviously very positive,” Malcolm Charles, who manages Investec Asset Management’s 30 billion rand ($&.8 billion) South African bond fund, said by phone from Cape Town. “It will be supportive of bonds. It means the bonds will have an underlying bid.”

The requirements for inclusion in the Citigroup index are size, credit quality and a lack of barriers to entry. Eleven South African local-currency bonds with a combined market value of $88 billion would be represented in the index, with a projected weighting of 0.44 percent, Citigroup said.

Spanish Auction

The rand also rallied after Spain sold more debt than its target at an auction, easing concern the nation’s fiscal crisis will worsen and improving investors’ appetite for riskier assets. The Standard & Poor’s GSCI Index of commodities gained for the first time in three days and South Africa’s benchmark stock index advanced, reversing an earlier retreat.

“The Spanish auction was a bit of a help,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Group Ltd., said by phone. “It takes away one of the huge negative points for risk appetite.”

The yield on South Africa’s $1.5 billion of 4.665 bonds due 2024 dropped for a fourth day, shedding four basis points to 4.12 percent, the lowest since the bonds were first sold on Jan. 17, according to data compiled by Bloomberg.

The extra yield investors demand to buy the debt rather than U.S. Treasuries narrowed by three basis points to 209 basis points.

To contact the reporter responsible for 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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