South African bonds extended declines, driving yields on benchmark securities to 19-month highs, and the rand slumped to a six-week low after the biggest sell-off in the nation’s debt since June.
Emerging-market stocks fell for the fourth day after U.S. Treasury yields touched a two-year high. Currencies from India’s rupee to Indonesia’s rupiah weakened amid an exodus that’s seen investors withdraw $8.4 billion from emerging market exchange-traded funds this year. Foreign investors sold a net 1.94 billion rand ($190 million) of South African bonds yesterday, the most in a day since June 25, JSE Ltd. data show.
“The risk is clearly for more rand and local bond weakness as the emerging market sell-off continues and threatens to become a rout,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “South Africa certainly hasn’t escaped the emerging-market sell-off.”
Yields on benchmark 10.5 percent bonds due December 2026 climbed six basis points, or 0.06 percentage point, to 8.66 percent, the highest level since January 2012. South Africa’s currency depreciated as much as 0.2 percent to 10.2263 per dollar, the weakest level since July 8. It traded at 10.2188 as of 8:42 a.m. in Johannesburg, bringing its loss in the past four trading days to 2.4 percent.
The rand extended declines amid concern labor disputes in the mining, automobile and textile industries may drag down South Africa’s economic growth. About 30,000 auto workers started a strike yesterday, shutting production at carmakers including General Motors Co. (GM), Toyota Motor Corp. and Bayerische Motoren Werke AG. Gold and platinum mines and textile producers are locked in wage talks.
“Although emerging markets across the board have come under sustained pressure, locally the rand as always remains vulnerable to local factors,” Mohammed Nalla, the head of strategic research at Nedbank Group Ltd. (NED) in Johannesburg, said in a note. “Amongst these is the potential for strike action, the effects of which would undoubtedly outweigh any benefit to the export sector of a weaker rand.”
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