Rand Gains as IMF Fund Pledges Boost Appetite for Risk

The rand gained, headed for its first weekly advance in three, and yields fell to seven-month lows after the International Monetary Fund received new pledges to bolster its crisis-fighting fund, boosting risk appetite.

South Africa’s currency climbed 0.4 percent to 7.8196 per dollar as of 3 p.m. in Johannesburg, bringing its advance this week to 1.6 percent, the most since the week ended Feb. 24. The yield on the nation’s 6.75 percent bonds due 2021 fell seven basis points, or 0.07 percentage point, to 7.64 percent, the lowest since Sept. 8. The yield has declined 30 basis points this week.

IMF Managing Director Christine Lagarde said the fund had received pledges of $320 billion, amid speculation finance chiefs from the G-20 meeting with the fund today in Washington will step up efforts to quell Europe’s debt crisis. Lagarde is seeking more than $400 billion in new reserves to increase a lending capacity of about $380 billion. She wants the money to help insulate the international economy from dangers such as European contagion, high unemployment and rising oil prices.

“Given the IMF’s role in helping the periphery in the euro zone as well as stabilizing the global economy, such news may help ease market fears,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. The recapitalization “will have been priced in by the markets but the accompanying statements may still provide some support for risk assets,” he added.

The Standard & Poor’s GSCI Index gained for a second day as the price of metals including copper, nickel and platinum advanced. Raw materials account for 45 percent of South Africa’s exports, according to government data.

Bond Inflows

The rand and bonds have rallied since April 17, when Citigroup Inc. said the nation’s debt may be included in its World Government Bond Index from October. That may attract as much as $7.5 billion from investors who track the gauge, Leon Myburgh, a Johannesburg-based analyst at Citigroup, said.

“Bonds are likely to continue to benefit in coming months,” Myburgh said in an e-mailed research note today. “Actual flows from WGBI tracking funds are not likely to start before the formal announcement of South Africa’s inclusion, which will only be towards the end of June.”

German Business Confidence

The rand extended gains, following the euro, after German business confidence unexpectedly increased for a sixth month in April. The rand often tracks the euro, with a statistical correlation of 0.7 over the past year. A value of 1 would mean they moved in lock step.

The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, rose to 109.9 from 109.8 in March. Economists forecast a drop to 109.5, the median of 40 estimates in a Bloomberg News survey.

The yield on South Africa’s $1.5 billion of 4.665 percent bonds due 2024 dropped 22 basis points to 4.11 percent. The extra yield investors demand to hold the debt rather than U.S. Treasuries narrowed 11 basis points to 212 basis points.

The rand’s three-month implied volatility versus the dollar declined to 15.3 percent, from 15.7 percent on April 16, indicating options trades expect smaller currency swings in coming months.

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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