South African Bonds Set for Best Week Since July on Yield Lure

South African bonds gained, set for the best weekly performance since July, as monetary easing by developed-nation central banks boosted demand for higher- yielding assets. The rand strengthened for a second week.

Near-zero interest rates in developed nations are prompting investors to seek better returns in emerging markets. Policy makers lowered the ECB refinancing rate to a record of 0.5 percent from 0.75 percent and left the door open to further monetary easing as the 17-nation euro region struggles to emerge from recession.

“South Africa’s medium-term bond yields are attractive and are attracting foreign buyers, which, in turn, is supporting the rand,” Theuns de Wet, head of global markets research at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The rand is also benefiting from the increase in risk appetite which accompanies central banks’ implicit guarantee that they’ll support global growth.”

Yields on benchmark 10.5 percent bonds due December 2026 dropped seven basis points, or 0.07 percentage point, to 6.57 percent, the lowest on record, according to data compiled by Bloomberg. The yield is down 28 basis points this week, a sixth straight week of declines and the most since the five days ended July 20. The rand depreciated 0.1 percent to 8.9601 per dollar, paring its weekly advance to 1.6 percent.

Foreign investors bought a net 723 million rand ($81 million) of South African bonds yesterday, bringing net purchases in the first four days of the week to 2.7 billion rand. The extra yield investors receive for holding South African 10-year debt rather than U.S. Treasuries narrowed six basis points today to 447. The spread has declined 58 basis points this year.

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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