South Africa Bonds Rally 4th Week on Foreign Inflows; Rand Drops

South African bonds rallied, set for a fourth weekly advance, buoyed by foreign-investor demand after the Federal Reserve refrained from reducing asset purchases. The rand weakened, paring its third weekly gain.

Foreign investors bought the most South African bonds in more than three months yesterday as global debt rallied with stocks and commodities after the Federal Open market Committee said on Sept. 18 it wants more evidence of an economic recovery before paring its $85 billion-a-month bond-buying program. South Africa’s central bank left its repurchase rate at 5 percent yesterday even as it adjusted inflation estimates upwards.

“While the Monetary Policy Committee statement put upward pressure on local yields and rates, it was not enough to reverse the impact of the FOMC’s decision to not taper in September,” Carmen Nel, a fixed-income analyst at Rand Merchant Bank in Johannesburg, said in an e-mailed note. “With the timing of tapering being pushed out, global market commentators have become outright bullish on risky assets.”

Yields on benchmark bonds due December 2026 dropped 12 basis points, or 0.12 percentage point, to 7.92 percent by 11:07 a.m. in Johannesburg, bringing the decline this week to 24 basis points. The rand depreciated 0.4 percent to 9.7438 per dollar, paring its gain this week to 1.9 percent.

Foreign investors bought a net 2.72 billion rand ($280 million) of South African bonds yesterday, the most in a day since June. That brought inflows for the month to 13.5 billion rand, according to JSE Ltd. data.

The central bank kept its average inflation forecast for this year unchanged at 5.9 percent, while raising next year’s projection to 5.8 percent from 5.5 percent, and predicting 5.4 percent in 2015. Inflation accelerated to 6.4 percent in August from 6.3 percent in the previous month.

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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