Bloomberg News

S. Africa Yields Hit Record Low as Rand Pares Gain on Rate Bets

June 13, 2012

South African bonds advanced, driving three-year yields to a record low, and the rand pared gains before the release of data that may show retail sales in Africa’s biggest economy slowing.

Yields on the nation’s 13.5 percent bonds due 2015 fell three basis points, or 0.03 percentage point, to 6.21 percent, the lowest on a closing basis on record, according to data compiled by Bloomberg. South Africa’s currency appreciated as much as 0.5 percent before paring its advance, trading 0.1 percent stronger at 8.3893 as of 11:12 a.m. in Johannesburg.

Retail sales growth probably slowed to 4.1 percent in April from 6.8 percent in the previous month, according to the median estimate of 11 analysts surveyed by Bloomberg. The data may add to signs the economy is losing steam, easing pressure on the central bank to lift rates from a three-decade low.

The retail sales data “are expected to reflect greater weakness in the consumer sector” as “global economic prospects continue to put a damper on the domestic outlook,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, wrote in e-mailed comments. “We now place a higher probability than before on a rescue-measure interest-rate cut.”

Swaps

Two-year interest-rate swaps, the fixed borrowing cost between banks and a gauge of investors’ expectations of average short-term rates in the next two years, dropped 3.5 basis points today to 5.53 percent. The rate has declined from 6.21 percent as recently as March 21.

The South African Reserve Bank has left its benchmark repo rate at 5.5 percent since November 2010 to support economic growth even as the inflation rate lifted above the 6 percent target.

The rand gained after Japanese machinery orders rose more than three times the pace estimated by economists, boosting the price of metals including copper. Metals and other commodities account for 45 percent of South Africa’s exports, according to government data.

“The focus remains on developments abroad,” Quinten Bertenshaw, a Johannesburg-based analyst at Tradition Analytics, wrote in e-mailed comments. “Given all that is set to unfold in coming trading sessions and the amount of bad news already priced in, traders will be reluctant to sit on any significant trading positions.”

Greece holds elections June 17 that may determine its future in the euro area, which buys about a fifth of South Africa’s exports. Italy and Germany are due to sell debt today after Spanish bond yields rose to a euro-era record yesterday.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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