Rand Rallies, Set for Weekly Advance on European Debt Optimism

The rand gained for a second day versus the dollar, reversing earlier declines, and bonds advanced as speculation a bailout for Greece is near boosted demand for higher-yielding assets.

South Africa’s currency climbed 0.8 percent to 6.7893 per dollar at 3:23 p.m. in Johannesburg, after dropping 0.7 percent. The rand gained 0.2 percent this week, the best performance among more than 20 emerging-market currencies monitored by Bloomberg. It declined less than 0.1 percent to 9.6916 per euro.

The euro strengthened against all but one of its 16 major peers after German Chancellor Angela Merkel retreated from German demands that bondholders be forced to shoulder a “substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to avoid disrupting markets. The rand often tracks the euro, the currency of most of South Africa’s trade, with a statistical correlation of 0.823 over the past month. A value of 1 would mean they moved in lock step.

“Those comments from Merkel seemed to have given the market confidence that they won’t throw Greece to the dogs,” Chris Becker, an analyst at Econometrix Treasury Management, said by phone from Johannesburg. “The euro rallied on the back of that and the rand is just following.”

French President Nicolas Sarkozy said a “breakthrough” had been made on the Greek debt crisis, following a meeting with Merkel. Sarkozy signaled a reconciliation between German calls for investors to help bail out Greece with warnings from the ECB and France that a compulsory move risked triggering the euro area’s first sovereign default.

Earlier, the rand declined to near its weakest level since May 31 as stocks tumbled and commodity prices fell on concern Greece’s debt crisis will spread to other countries in the region, slowing global economic growth.

Bonds Rally

Bonds gained, snapping a seven-day losing streak, as yields at the highest in a month lured investors. The 13.5 percent notes due 2015 gained 16 cents to 121.19 rand, driving the yield down four basis points, or 0.04 percentage point, to 7.54 percent. The 6.75 percent securities due 2021 climbed 12 cents to 89.05 rand, cutting the yield two basis points to 8.41 percent. The 10-year benchmark German bund yielded 2.95 percent.

“The market got the kick in the pants that it needed,” Rand Merchant Bank analysts led by Theuns de Wet said in a research note. “Buyers have started to come out at these higher levels.”

Foreign investors sold a net 1.8 billion rand ($262.6 million) of South African bonds so far this week, after buying 6.8 billion rand of bonds the previous week, according to JSE Ltd. data. Funds investing in developing-nation shares saw withdrawals of about $829 million during the week ended June 15 Citigroup analysts led by Markus Rosgen wrote in a report today citing data compiled by EPFR Global.

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