Rand Extends Losses on Larger Trade Deficit, Moody’s Down

South African yields fell the most in a week as expectations of a rate cut in Africa’s biggest economy grew and as foreign buying of the nation’s bonds increased after they were included in a key index. The rand advanced.

Yields on 6.75 percent notes due 2021 dropped 10 basis points, the most since Sept. 25, to 6.57 percent by 4:45 p.m. in Johannesburg. The rand gained 0.3 percent to 8.3610 per dollar, snapping two days of losses.

The decision to hold the benchmark interest rate unchanged last month wasn’t an “easy one”, South African Reserve Bank Governor Gill Marcus said in a speech to the Nordic-South African Business Association in Johannesburg today. The bank, which cut its benchmark repurchase rate for the first time in 20 months in July to spur the economy, held the rate at 5 percent last month as price pressures gained. Forward-rate agreements, used to speculate on interest rates, declined six basis points to 4.74 percent today, signaling investors are increasing bets on a reduction in the next six months.

“She has left the door wide open in terms of a cut if the economic backdrop continues to deteriorate,” Mohammed Nalla, strategic analyst at Johannesburg-based Nedbank Group Ltd. (NED), said by phone. “The potential for a cut is certainly rising” following the release of weak manufacturing data, Nalla said.

South Africa’s purchasing managers’ index fell to a three- year low in September as mining strikes spread and demand from Europe waned, Kagiso Tiso Holdings said in an e-mailed statement yesterday.

Foreign investors bought a net 6 billion rand ($718 million) of South African government bonds yesterday, adding to net purchases of 635 million rand on Sept. 28 as they were included in Citigroup Inc.’s World Government Bond Index.

“Some of the money that was supposed to come in is coming in slowly rather than the one-off big whammy that we first expected,” Brigid Taylor, the head of institutional flow sales at Johannesburg-based Nedbank Group Ltd., said by phone. “We are seeing strength across the yield curve.”

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

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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