Rand Set for Weekly Advance as Yields Fall on Stimulus

The rand was set for a second consecutive weekly advance on speculation global policy makers will act to combat a global economic slump, improving investors’ appetite for riskier assets.

South Africa’s currency gained as much as 0.3 percent, and traded at 8.3778 per dollar as of 2:35 p.m. in Johannesburg, little changed from yesterday’s New York close. The rand has strengthened 0.1 percent this week. Yields on the nation’s 6.75 percent bonds due 2021 dropped five basis points, or 0.05 percentage point, to 7.53 percent, the lowest since May 3.

Stocks and commodity prices climbed for a second day on bets central banks will take steps to boost economies after policy makers from the U.K. to Japan and Canada stepped up warnings about the threat to world financial markets should Europe fail to contain its debt crisis. Greek elections June 17 may determine whether the country upholds austerity measures and remain a member of the euro bloc, South Africa’s biggest regional trading partner.

“Risk received a boost after reports that leading central bankers were considering taking action,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “The improvement in sentiment saw the rand regain further ground against a sagging dollar.”

Bad News Good

U.S. industrial output probably slowed and consumer confidence fell, according to economists’ estimated before reports due today. More Americans applied for jobless benefits and consumer prices dropped by the most in three year, reports showed yesterday, giving the Federal Reserve more room to spur the economy.

“Markets are using this poor news to price in more quantitative easing,” or bond-buying by the Federal Reserve, Quinten Bertenshaw, a Johannesburg-based analyst at Tradition Analytics, wrote in e-mailed comments. “So bad news is now good news, because bad news means” monetary stimulus, he added.

The Standard & Poor’s GSCI Index of raw materials climbed 0.5 percent as the prices of metals including copper and nickel rose. South Africa’s benchmark stock index gained, led by commodity exporters including Anglo American Plc (AAL) and BHP Billiton Ltd. (BHP)

Bonds gained for a fifth day, driving three-year yields to a record low, as investors bet signs of a slowing global economy will put pressure on the central bank to cut interest rates. Yields on 13.5 percent bonds due 2015 dropped five basis points to 6.11 percent.

Two-year interest-rate swaps, a gauge of investors’ expectations of average borrowing costs over the next two years, dropped 1.5 basis points today to 5.475 percent, the lowest November. The swap rate fell below the South African Reserve Bank’s 5.5 percent repurchase rate, an indication that traders expect a rate cut in the two-year period.

The central bank has left its repo rate unchanged since November 2010 to boost growth in Africa’s biggest economy, even as the inflation rate rose above the 3 to 6 percent target range.

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