Rand Gains as Foreign Bond Purchases Push Yields to Record Lows

The rand advanced as foreign investors bought South African bonds, pushing yields to record lows, after Transnet SOC Ltd. said it planned to raise as much as $2 billion in an international debt sale.

South Africa’s currency climbed as much as 0.7 percent and traded 0.2 percent stronger at 8.2020 per dollar by 4:15 p.m. in Johannesburg. Yields on the nation’s 6.75 percent bonds due 2021 dropped one basis point to 7.06 percent after falling to 7.04 percent in earlier trading, the lowest on record according to data compiled by Bloomberg.

Foreign investors bought a net 1.2 billion rand ($146.5 million) of South African bonds yesterday, according to data supplied by JSE Ltd., operator of the country’s stock and bond exchanges. That takes net purchases for the year to 54.5 billion rand, compared with 47.4 billion rand for the whole of 2011. Transnet’s planned $2 billion bond issue would cover the company’s 14.1 billion-rand funding requirement for the year and ease supply pressure in the local debt market.

Transnet’s announcement of its planned bond sale “had banks jostling for positions” in the interest-rate derivatives market, Thando Vokwana, a fixed-income trader at FirstRand Bank Ltd. in Johannesburg, said in e-mailed comments. “Persistent offshore buying” of rand bonds also pushed yields lower, he added.

Transnet, the state-owned ports and railway operator, will hold meetings with fixed-income investors in London and the U.S. from July 12 to 18 to test appetite for the sale, Andrew Costa, head of bond origination at Standard Bank Group Ltd., said by phone yesterday, without giving details. Standard Bank is co-managing the sale with JPMorgan Chase & Co.

Rate Cut

Investors are adding to bets the South African Reserve Bank will cut interest rates as the slowing global economy damps demand for South Africa’s exports. The central bank has left its benchmark repo rate at 5.5 percent since November 2010, and meets on July 19 to set policy.

Forward-rate agreements, used to speculate on interest rates, dropped one basis point today to 5.18 percent, the lowest on a closing basis since November. The rate is 47 basis points below the Johannesburg Interbank Agreed Rate, indicating traders see more than a 90 percent probability of a 50 basis point rate cut in the next six months.

“The probability of a rate cut before year-end is very close to fifty-fifty in our view,” Adriaan du Toit, a fixed-income analyst at Standard Bank Group Ltd. in Johannesburg, said in an e-mailed research note.

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