The rand gained for the first time in four days and bonds rallied after South Africa sold the longest-maturity debt on record, bolstering confidence investor demand for local debt will continue to support the currency.
South Africa’s currency appreciated 0.3 percent to 8.4622 per dollar as of 12:48 p.m. in Johannesburg, paring its retreat this quarter to 9.3 percent. Yields on the nation’s 6.75 percent bonds due 2021 fell four basis points, or 0.04 percentage point, to 7.36 percent after rising as much as six basis points in earlier trading.
Investors bid for more than three times the amount on auction as the National Treasury sold 500 million rand ($59 million) of 8.75 percent notes due 2048, the longest-maturity fixed-interest debt from an emerging-market nation in Europe or Africa for the past five years. The Treasury also sold 1.6 billion rand of securities maturing 2023 and 2031.
“It is encouraging,” Ian Cruickshanks, head of strategic research at Nedbank Group Ltd. (NED) in Johannesburg, said by phone. “Full credit to the minister of finance for taking funds at what is a relatively low rate considering the period.”
Finance Minister Pravin Gordhan is reducing short-term refinancing pressure by selling long-term bonds and exchanging two-year debt for notes with longer maturities. The Treasury is selling inflation-linked bonds maturing 2038 on Friday and also planning to introduce inflation-linkers due 2051 this year, it said in the budget review in February.
The 2048 bonds were auctioned at an average yield of 8.83 percent, or 35 basis points more than notes maturing in 2031, according to Reserve Bank data on Bloomberg.
Foreign investors have been net buyers of 43.6 billion rand of South African bonds this year, JSE Ltd. data shows. The inflows have helped support the rand even as concern Europe’s debt crisis is worsening damped demand for riskier assets, said John Cairns and Josina Solomons, analysts at Rand Merchant Bank in Johannesburg.
The rand’s gain today follows a 3.3 percent slump in the previous three sessions, touching a three-week low of 8.5261 per dollar, as mounting concern that Europe’s debt crisis is threatening global growth prompted investors to sell riskier, emerging-market assets. The decline, the worst among more than 20 emerging-market currencies monitored by Bloomberg, may be overdone, a technical indicator shows.
“The rand is oversold relative to its compatriot high- yielding currencies,” Cairns and Solomons wrote in emailed comments today. “Another real factor stands out: foreigners have been aggressively buying up our local bonds.”
The stochastic oscillator for the dollar versus the rand was at 72 today, above the 70 threshold that signals the South African currency had depreciated too fast and is poised for a rebound. A stochastic oscillator is a technical momentum indicator that compares a security’s closing price with its price range over a given period.
The rand is likely to trade in a narrow range as the African National Congress today started a four-day policy conference. The ruling party may endorse plans to raise mining taxes and increase state control over the economy as President Jacob Zuma shores up grassroots support ahead of a party election.
“Players in the market will be a little nervous and will probably stay that way until the end of the week,” Cruickshanks said.
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