South African Bonds Surge, Posting Best Month Since 2008 as Economy Slows

South African bonds surged this month, pushing four-year yields down the most since 2008, buoyed by foreign investor demand for relatively high-yielding fixed- income securities amid signs the global economy is slowing.

The 13.5 percent notes due 2015 have gained 2.4 percent this month, driving the yield down 82 basis points, or 0.82 percentage point, to 6.52 percent, the most since December 2008, when it dropped 110 basis points. The yield was little changed today.

“Fixed income remains a safe haven, even in emerging markets,” Rand Merchant Bank analysts led by Theuns de Wet wrote in an e-mailed note.

South African government debt returned 1.7 percent in August, Bank of America Merrill Lynch data show, even as the nation’s benchmark stock index declined 0.7 percent. Africa’s biggest economy expanded an annualized 1.3 percent in the second quarter, its slowest pace in almost two years, as slowing global growth dimmed prospects for the country’s commodity exports, Statistics South Africa said yesterday.

Foreign investors bought a net 12 billion rand ($1.71 billion) of South African bonds this month, even as they sold 10.4 billion rand of equities, according to JSE Ltd. data. So far this year, global funds have bought 54.5 billion rand of South African bonds, compared with 57.1 billion of purchases in 2010.

Foreign Inflows

South Africa attracted 15 percent of investments in emerging-market debt this year, with global investors now owning about 30 percent of government debt, according to research by Johannesburg-based Afrifocus Securities.

“The trend of foreign inflows into our bond market has proved resilient,” Michael Grobler, a fixed-income analyst at Afrifocus, said in an e-mail. “September may still prove supportive for bond yields” given the “macro data environment for bonds”.

The Reserve Bank has kept its benchmark interest rate unchanged at 5.5 percent this year to help boost the recovery in the nation’s economy, even as price pressures increased. The central bank will “act appropriately” if a sustained slowdown in the global economy dragged back domestic growth, Governor Gill Marcus said on Aug. 23.

“The uninspiring local GDP data fuelled hopes that the Reserve Bank might reduce its lending rates over coming months, which encouraged bond market bulls,” Standard Bank Group Ltd. analysts led by Johannesburg-based Michael Keenan said in a research note. “There has been a notable recalibration of both global and domestic growth, which warrants an extended period of accommodative monetary policy.”

South African government bonds prices have rallied 5 percent in 2011, while an index of bonds around the world returned 2.8 percent, Bank of America figures show. The FTSE JSE Africa All-Share Index has declined 3.5 percent.

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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