South African Yields Fall to Record on Rate Outlook; Rand Gains

South African bonds gained, driving yields to record lows, amid speculation the central bank will cut interest rates as inflation slows and Europe’s debt crisis threatens global economic growth. The rand advanced.

Yields on South Africa’s 6.75 percent bonds due 2021 dropped four basis points, or 0.04 percentage point, to 7.27 percent, the lowest since the securities were first issued in 2006. South Africa’s currency strengthened 0.3 percent to 8.4163 per dollar as of 2:32 p.m. in Johannesburg.

The cost of goods leaving factories and mines rose at 6.6 percent in May, the same pace as in April, Statistics South Africa said. Consumer inflation slowed to 5.7 percent in May, the agency said on June 20. European leaders are preparing to meet in Brussels as they struggle to find a solution to the debt crisis.

“With inflationary pressure easing, monetary policy will probably remain accommodative, supporting a fragile local economy given considerable downside risks emanating from a weak Europe,” Dennis Dykes, chief economist at Nedbank Group Ltd., and colleagues wrote in e-mailed comments.

Central bank Governor Gill Marcus has left the benchmark repurchase rate at 5.5 percent since November 2020. Forward-rate agreements starting in December have dropped 27 basis points in the past month to 5.25 percent, indicating traders see a probability of a rate cut by the year-end.

Yields on South Africa’s $1 billion of 5.875 percent bonds due 2022 dropped three basis points to 3.55 percent, the lowest on record.

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