South African Bond Yields Fall to Record Lows on Growth Concerns

South African bonds gained, driving yields on benchmark notes to record lows, as signs of faltering growth in China and the European Union prompted investors to seek better returns in emerging markets. The rand strengthened.

U.S. Treasury yields, the global benchmark for bonds, dropped to the lowest level in more than four months after New York Federal Reserve Bank President William C. Dudley said yesterday “more needs to be done” to shore up world growth. China’s manufacturing is expanding at a slower pace and euro- area output contracted for a 15th consecutive month in April, data showed today. Record stimulus by central banks from the U.S. to Japan is driving the rally in emerging-market bonds.

“If you look at global bond yields, the search-for-yield story is back on the table,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. (NED) in Johannesburg, said by phone. “We are the beneficiaries of the global stimulus drive.”

Yields on benchmark 10.5 percent notes due December 2026 fell 13 basis points, or 0.13 percentage point, to 6.77 percent by 2:45 p.m. in Johannesburg, set for the lowest close on record, according to data compiled by Bloomberg. The rand appreciated 0.1 percent to 9.2268 per dollar, after weakening as much as 0.8 percent earlier.

Demand rose 49 percent at a weekly auction of government debt today. The National Treasury sold 2.35 billion rand ($255 million) of notes maturing in 2023, 2036 and 2041 with investors bidding a total of 13.5 billion rand, or 5.7 times the amount on offer.

Manufacturing Output

Foreign investors have purchased a net 26.3 billion rand of South African bonds this year, compared with 30.8 billion rand in the comparable period in 2012, according to JSE Ltd. data.

South African manufacturing production contracted to 2.9 percent in February from 3.7 percent the previous month, the statistics agency said on April 11, as stagnant domestic and global growth curbed demand. The National Treasury expects the economy to expand 2.7 percent this year, less than half the 7 percent the government is targeting to address a 24.9 percent unemployment rate.

China’s Purchasing Managers’ Index stood at 50.5 this month, below the median estimate of 51.5 in a Bloomberg survey of 11 analysts, an initial reading by HSBC Holdings Plc and Markit Economics shows. Euro-area services and factory output shrank for a 15th month in April, according to the composite index based on a survey of purchasing managers in both industries.

Evidence of slowing growth may persuade central banks to extend monetary stimulus and prompt governments to ease austerity measures in favor of stimulatory fiscal policies, said George Glynos, a Johannesburg-based analyst at ETM Analytics.

“Austerity in its current rigid form appears to be running out of support from most quarters,” he said in e-mailed comments. “For the rand over the longer term, this should be generally more supportive than not.”

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

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

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