The rand fell to its lowest level against the dollar this year and bonds pared gains after talks to form a Greek government failed, raising concern that Europe’s debt crisis will worsen and damping appetite for riskier assets.
South Africa’s currency retreated as much as 0.6 percent to 8.2565 per dollar, the lowest level since Dec. 22. It traded 0.4 percent weaker as of 3:44 p.m. in Johannesburg, a sixth day of losses. The yield on the nation’s 6.75 percent bonds due 2021 dropped two basis points, or 0.02 percentage point, to 7.79 percent after falling as low as 7.76 percent in earlier trading.
Greece will hold new elections after Greek President Karolos Papoulias failed to broker creation of a government following an inconclusive May 6 vote, Pasok leader Evangelos Venizelos said today. A second Greek election threatens to extend the political gridlock that has left the country without a government since the last vote, with polls showing that could boost the anti-bailout Syriza party to the top spot.
“Risk appetite is going to go right off, flows to emerging markets including South Africa will decline, and that is going to put their currencies under pressure,” Ian Cruickshanks, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by phone. “We certainly saw quite a rash of dollar buying against the rand” immediately after Venizelos’ statement, he said.
The standoff in Greece has reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since May 2010, and, ultimately, leave the euro area, Cruickshanks said.
The rand rallied in earlier trading after faster-than- expected growth in Germany helped the euro area avoid its second recession in three years. Gross domestic product in the 17- nation euro region stagnated in the latest quarter compared with the prior three months, the European Union’s statistics office in Luxembourg said today. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent contraction. Germany’s economy expanded 0.5 percent, compared with the 0.1 percent median estimate by economists in a separate survey. The euro region buys 22 percent of South Africa’s exports.
The debt crisis has already pushed eight euro-region countries into recession, commonly defined as two consecutive quarters of contraction, with Spain’s economy the latest to succumb. France said today it recorded zero growth in the first quarter, in line with economists’ median forecast.
South Africa sold 2.1 billion rand ($257 million) of bonds maturing in 2018, 2026 and 2041 at a central bank auction today, with investors bidding for 2.9 times the amount on offer.
The yield on South Africa’s $1 billion 5.875 percent bonds due 2022 rose one basis point to 3.96 percent. The cost of insuring South Africa’s dollar-denominated bonds declined for the first time in six days, dropping 0.7 basis points to 172.1 basis points. Credit default swaps rose to a three-month high yesterday.
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