Rand Falls First Day in Three on Weak Jobs Data

South African bonds gained, driving yields to four-year lows, on continued demand from foreign investors buying the debt before its probable inclusion in a widely-tracked index.

The yield on the nation’s 6.75 percent bonds due 2021 dropped 8.5 basis points to 7.50 percent, the lowest since January 2009, according to data compiled by Bloomberg. The yield has declined 17.5 basis points in the past two days. The rand was little changed, trading 0.1 percent weaker at 7.7312 per dollar as of 3:33 p.m. in Johannesburg.

Foreign investors bought a net 2.3 billion rand ($297 million) of South African bonds yesterday, according to JSE Ltd. data, adding to 17.6 billion of debt purchases since Citigroup Inc. said April 17 South African debt was eligible for its World Government Bond Index. Inclusion in the index may attract as much as $7.5 billion to South Africa’s bond market from investors tracking the gauge, Citigroup analysts estimated.

“We’ve seen quite a lot of demand from offshore today,” Brigid Taylor, head of institutional flow sales at Nedbank Group ltd. in Johannesburg, said by phone. “That’s all still on the back of positioning before inclusion in the WGBI.”

Bonds were also buoyed after business confidence dropped to the lowest level in more than three years in April. The business confidence index fell to 94.3 from 95.7 in March, the Johannesburg-based South African Chamber of Commerce and Industry said in an e-mailed statement today. The index is compiled from 13 economic indicators, including retail sales, inflation and financial gauges, such as a stock-market index and currency.

Interest Rates

Investors pared bets that the South African Reserve Bank will lift interest rates this year. Forward-rate agreements starting in a year dropped four basis points today to 5.87 percent, the lowest since Feb. 3. The rate has declined from 6.31 percent on March 20.

The central bank has left its benchmark repo rate at 5.5 percent, a 30-year low, since Nov. 2010 to aid a recovery in Africa’s biggest economy. The next Monetary Policy Committee meeting starts on May 23, with the interest rate decision announced on May 24.

“General economic conditions remain fragile,” Dennis Dykes, a Johannesburg-based economist at Nedbank, said in e-mailed comments. “We therefore still expect that the MPC will keep interest rates steady and start tightening gradually only in the fourth quarter of 2012, barring any surprises on the growth and inflation fronts.”

Spanish Debt

The rand weakened as much as 0.4 percent earlier as data on global jobs and China’s services industry signaled weaker economic growth, dimming South Africa’s export prospects.

Spain’s borrowing costs increased as it sold $2.52 billion of bonds at an auction today, suggesting the impact on yields from the European Central Bank’s stimulus measures is waning. European Central Bank President Mario Draghi today said the economic outlook in the euro area is subject to downside risks and inflation pressures should remain limited.

The euro region buys 22 percent of South Africa’s exports, according to government data for 2011. An index of global emerging-market stocks declined and a gauge of raw material prices fell for a second day. South Africa’s benchmark stock index declined for the first time in six days, retreating from a record.

The yield on South Africa’s $1.5 billion of 4.665 bonds due 2024 dropped seven basis points to 4.06 percent, the lowest on record. The premium investors demand to hold the debt rather than U.S. Treasuries shrank five basis points to 211 basis points.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE