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South African Yields Rise on Mine Violence as Rand Reverses Fall

South African bond yields rose for a second day on concern that recent violence at platinum mines may weigh on the nation’s credit ratings.

Yields on the nation’s 13.5 percent bonds due September 2015 advanced one basis point, or 0.01 percentage point, to 5.58 percent by 4:44 p.m. in Johannesburg, the highest in a week after jumping 10 basis points Aug. 24. The rand strengthened less than 0.1 to 8.3951 per dollar, reversing an earlier 0.4 percent decline. The currency slid 2.4 percent last week.

Protests at a Lonmin Plc platinum mine which left 44 dead and sparked wage protests at other mines highlight structural problems that may weaken South Africa’s credit rating, Fitch Ratings said in a statement on Aug. 24. Mining accounts for 8.8 percent of the country’s gross domestic product and generates jobs for about 1 million of the nation’s 51 million people, according to the South African Chamber of Mines.

“The mine violence continues to take its toll,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “It remains a news story around the world, the latest angle being that it’s a threat to the country’s sovereign ratings.”

Fitch, Standard & Poor’s and Moody’s Investors Service have cut their outlook for South African credit to negative from stable since November, citing unsustainable spending and political stability in Africa’s largest economy. The ruling African National Congress holds leadership elections in December.

“Continuing political uncertainty regarding ANC leadership as well as spreading labor unrest have dented South Africa’s prospects as a competitive investment destination for emerging markets fund allocations,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Group Ltd., and colleagues wrote in a report today.

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