The rand advanced to a five-month high and bonds rose on speculation the European Central Bank’s liquidity injection into the region’s banks will boost appetite for South African stocks and debt.
The currency climbed as much as 0.6 percent to 7.5068 per dollar, the strongest level since Sept. 19. It traded 0.3 percent stronger at 7.5278 as of 1:59 p.m. in Johannesburg, a fifth day of gains. The yield on the nation’s 77 billion rand ($10 billion) of 6.75 percent bonds due 2021 fell two basis points, or 0.02 percentage point, to 7.86 percent.
The ECB will tomorrow allot a second round of unlimited three-year funds to lenders. Global emerging-market stocks rallied on expectation the long-term refinancing operation, or LTRO, will boost demand for higher-yielding assets. The rand gained as much as 1.7 percent on Dec. 21, when the ECB last lent support to the region’s banks.
“A risk-on environment is prevailing at the moment,” George Glynos, an analyst at ETM Analytics in Johannesburg, said in e-mailed comments. “As we look forward to tomorrow’s LTRO by the ECB, the significance of this event should not be under-estimated. This has certainly helped emerging-market currencies and the rand has tagged along.”
European banks are likely to tap the ECB for 470 billion euros ($632 billion) in three-year funds, according to a Bloomberg News survey of analysts. That would compare with the 489 billion euros borrowed at the LTRO Dec. 21.
Foreign investors were net buyers of 5.6 billion rand of South African stocks and bonds in the past five trading days, according to the JSE Ltd., which runs the nation’s stock and bond exchanges. South Africa’s benchmark stock index gained as much as 0.9 percent, the most in more than a week.
“It is pretty clear that foreigners are becoming large buyers of our local assets again, a piece of our strong rand puzzle that has been missing until recently,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in a research note.
The rand maintained its advance after a report showed growth in Africa’s biggest economy quickened in the fourth quarter. Gross domestic product accelerated to an annualized 3.2 percent from a revised 1.7 percent in the previous three months, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 15 economists was for growth of 3.1 percent.
South Africa’s $1.5 billion of 4.665 percent bonds due 2024 gained, driving the yield down four basis points to 4.245 percent. The premium investors demand to hold the debt rather than U.S. Treasuries narrowed 3.5 basis points to 2.33 percentage points.