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June 13 (Bloomberg) -- South African bonds gained, driving three-year yields to a record low, on speculation the central bank will cut interest rates after retail sales grew at the slowest pace two years. The rand was little changed.

Yields on the nation’s 13.5 percent bonds due 2015 fell six basis points, or 0.06 percentage point, to 6.18 percent, at 4 p.m. in Johannesburg, the lowest on a closing basis on record, according to data compiled by Bloomberg. South Africa’s currency appreciated less than 0.1 percent to 8.3987 per dollar.

Sales rose 1 percent from a year earlier, down from a revised 6.7 percent in March, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 11 economists was 4.1 percent. Three-month forward-rate agreements used to bet on interest rates fell to the lowest since November.

“The probability of a rate cut has arisen” given the downside risks to growth, Tebogo Mosepele, a Johannesburg-based analyst at Standard Bank Group Ltd., wrote in e-mailed comments.

The forward-rate agreements starting in December dropped eight basis points to 5.27 percent today, the lowest November. The rate is 32.5 basis points below the three-month Johannesburg Interbank Agreed rate, or Jibar, indicating traders see a two-thirds probability of a rate cut by the year-end.

Two-year interest-rate swaps, the fixed borrowing cost between banks and a gauge of investors’ expectations of average short-term rates in the next two years, dropped six basis points today to 5.50 percent, level with the central bank’s benchmark repo rate. The swap rate has declined from 6.21 percent as recently as March 21.

Repo Rate

The South African Reserve Bank has left its benchmark repo rate at 5.5 percent since November 2010 to support the economy even as the inflation rate lifted above the 6 percent target. Consumer prices have peaked and are likely to fall back within the target range this month, Reserve Bank Governor Gill Marcus said on May 24.

South Africa’s inflation rate increased 6.1 percent in April, less than the median estimate of 6.2 percent forecast by 18 economists surveyed by Bloomberg.

The rand gained as much as 0.5 percent earlier after Japanese machinery orders rose more than three times the pace estimated by economists, boosting the price of metals including copper. Metals and other commodities account for 45 percent of South Africa’s exports, according to government data.

“The focus remains on developments abroad,” Quinten Bertenshaw, a Johannesburg-based analyst at Tradition Analytics, wrote in e-mailed comments. “Given all that is set to unfold in coming trading sessions and the amount of bad news already priced in, traders will be reluctant to sit on any significant trading positions.”

Greece holds elections June 17 that may determine its future in the euro area, which buys about a fifth of South Africa’s exports. Borrowing costs increased at debt auctions in Germany and Italy today after Spanish bond yields rose to a euro-era record yesterday.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at

To contact the editor responsible for this story: Gavin Serkin at

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