Bloomberg News

South Africa Bonds Gain Second Day on Rate Bets

May 25, 2012

The rand declined, set for a fourth consecutive weekly retreat, on concern Europe’s debt crisis will weigh on growth, damping South Africa’s export prospects and investors’ appetite for riskier assets. Bonds gained.

The rand weakened 0.2 percent to 8.3770 per dollar as of 3 p.m. in Johannesburg, bringing its five-day retreat to 0.5 percent. South Africa’s currency has slumped 7.5 percent in the past four weeks. The yield on 6.75 percent bonds due 2021 dropped two basis points to 7.66 percent.

Spain’s government is analyzing “with all caution” requests from regional governments to help them regain access to capital markets, Deputy Prime Minister Soraya Saenz de Santamaria said today after the government of Catalonia asked for assistance. Greece is heading for a second election on June 17 after an inconclusive vote this month ignited concern it may quit the euro. European leaders urged Greece to stick with austerity measures needed to stay in the single currency at a summit in Brussels that ended yesterday.

“The currency, along with other risk assets and commodity currencies, remains under pressure on a combination of global growth and the concerns about Greece exiting the euro zone,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “With EU leaders still at odds over the way forward, and Greek elections looming next month, the only certainty is that the rand’s volatility will continue.”

Standard Bank sees the rand weakening to 8.60 per dollar by the end of 2012, from a previous estimate of 8.10 per dollar, Guma said.

Consumer Confidence

Data next week may show consumer confidence in the euro bloc was little changed this month, while the jobless rate climbed in April to a 21-year high. The 17-nation euro area buys 22 percent of South Africa’s exports.

South African bonds gained for a second day as investors added to bets the central bank will cut interest rates as the global economy slows.

The central bank’s Monetary Policy Committee left its benchmark repo rate at 5.5 percent yesterday even after inflation quickened to 6.1 percent in April, above the 6 percent upper limit of the bank’s target range. Governor Gill Marcus revised her inflation forecast lower, and said the central bank is ready to cut rates should the euro area debt crisis weigh on economic growth in Africa’s biggest economy.

“The dovish bias in the statement has seen more talk of easing prospects,” Carmen Nel and Mamello Matikinca, analysts at FirstRand Ltd. in Johannesburg, said in e-mailed comments. “As long as the euro zone crisis keeps uncertainty and risk aversion elevated alongside a moderation in global growth, the market will continue to price in a reasonable chance of a rate cut.”

Forward-rate agreements starting in February, after the first Monetary Policy Committee meeting for 2013, yielded 5.52 percent today after dropping to 5.49 yesterday, the lowest since December. Forward-rate agreements are pricing in a 20 percent chance of a 50 basis-point rate cut between September and January, Nel and Mamello said.

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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