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South Africa’s Rand Declines as Commodity Prices Fall

The rand extended its longest winning streak in seven months and yields fell to the lowest in more than a week after euro-area banks tapped the European Central Bank for more than economists forecast.

South Africa’s currency climbed as much as 0.7 percent to 7.4221 versus the dollar, a sixth day of gains, the longest advance since July 27. The rand traded 0.5 percent stronger at 7.4364 as of 4 p.m. in Johannesburg. The yield on the nation’s 77 billion rand ($10 billion) of 6.75 percent bonds due 2021 dropped three basis points, or 0.03 percentage point, to 7.815 percent, the lowest since Feb. 20. Bond risk fell to the lowest in four months.

The Frankfurt-based ECB said today it will lend 800 financial institutions 529.5 billion euros ($712.2 billion) for 1,092 days. Economists predicted an allotment of 470 billion euros, according to the median of 28 estimates in a Bloomberg News survey. The loans will help ease concerns about funding pressures and provide liquidity for investment in riskier assets including commodities and South Africa’s stocks and bonds.

“Some of this additional liquidity could also find its way into the South African bond market,” Kevin Lings, a Johannesburg-based economist at Stanlib, the money manager unit of Standard Bank Group Ltd., said in e-mailed comments. “The rand is expected to remain firm.”

The rand gained as much as 1.7 percent and 10-year yields fell seven basis points after the first ECB tender on Dec. 21, when banks took 489 billion euros.

South Africa’s benchmark stock index climbed for a second day, after posting its biggest one-day gain in a month yesterday, as commodity prices rallied. Mining companies including Anglo American Plc and BHP Billiton Ltd. led the advance. Commodities, including metals, account for 64 percent of South Africa’s exports, according to government data.

Default Risk

Credit default swaps for South Africa’s foreign-currency sovereign bonds fell one basis point to 157 basis points today, the lowest since Oct. 27 on a closing basis, according to CMA. The contracts, which drop as perceptions of creditworthiness improve, traded below default swaps from higher-rated Austria and France 163 and 178.4, respectively.

Bonds gained as investors bet an expansion in private-sector borrowing won’t be enough to persuade the central bank to raise interest rates soon.

Borrowing by households and businesses rose 7.3 percent from a year earlier, up from a revised 6.1 percent in December, the Pretoria-based Reserve Bank said on its website today. The median estimate in a Bloomberg survey of 11 economists was 7.1 percent.

Staying Neutral

“These credit numbers do not change our view that the monetary policy committee is likely to keep policy neutral while the economic climate remains cloudy in the face of weak global conditions,” Dennis Dykes, an economist at Nedbank Group Ltd. in Johannesburg, and colleagues wrote in e-mailed comments.

South Africa’s central bank has left its benchmark repo rate at 5.5 percent for the past 18 months to aid a recovery in Africa’s biggest economy. Forward-rate agreements starting in November, after the MPC’s last meeting of 2012, dropped six basis points today to 5.86 percent as investors pared bets on an interest-rate increase this year.

The yield on the nation’s $1.5 billion of 4.665 percent bonds due 2024 dropped three basis points to 4.2 percent, the lowest since the bonds were first sold on Jan. 17. The extra yield investors demand to hold the debt rather than U.S. Treasuries narrowed one basis point to 229 basis points.

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