South African Bonds Gain on Growth Concerns; Rand Strengthens

South African bonds gained for a second day as traders bet the central bank will cut interest rates for a second time amid signs growth in Africa’s biggest economy is stalling. The rand advanced.

Yields on the nation’s 6.75 percent bonds due March 2021 dropped three basis points, or 0.03 percentage point, to 6.80 percent as of 4 p.m. in Johannesburg. South Africa’s currency gained less than 0.1 percent to 8.4046, rebounding from a 0.3 percent decline in earlier trading.

Manufacturing contracted 1 percent in the second quarter even as gross domestic product increased 3.2 percent after mining output surged, Statistics South Africa said yesterday. Mining growth may be short-lived after Lonmin Plc, the third-biggest platinum producer, halted production following the worst labor violence since the end of apartheid in 1994. The central bank cut its benchmark interest rate by 50 basis points on July 19 to help boost growth amid a global slowdown.

“Yesterday’s GDP release suggested that growth is indeed softening,” Theuns de Wet, head of fixed-interest research at Rand Merchant Bank in Johannesburg, and colleagues wrote in e-mailed comments. “We put the odds on another cut before the middle of next year above 50 percent.”

Factory output, which accounts for 15 percent of the economy, is under pressure as a debt crisis in Europe cuts demand from a region that buys 25 percent of South Africa’s exports.

Forward-rate agreements, used to speculate on interest rates, were unchanged at 4.78 percent, or 30 basis points lower than the Johannesburg Interbank Agreed Rate, indicating that traders are pricing in a 60 percent chance of a 50 basis-point rate cut within six months.

Chinese Demand

The rand declined in earlier trading as commodity prices retreated on concern that Chinese demand is slowing and ahead of a meeting of central bankers where the U.S. Federal Reserve may announce more measures to stimulate the economy.

China may slow the pace of monetary loosening on concern inflation may rebound, Xinhua News Agency said yesterday, citing Bank of Communications Co. and China International Capital Corp. Fed Chairman Ben S. Bernanke said last week there’s “scope for further action” from the U.S. central bank. He is scheduled to speak later this week at a symposium in Jackson Hole, Wyoming.

“Any failure of the central banks to raise expectations of more stimulus could see the rand under significant pressure,” Quinten Bertenshaw, a Johannesburg-based analyst at ETM Analytics, wrote in e-mailed comments.

China, which buys 13 percent of South Africa’s exports, is the nation’s biggest trading partner. The Standard & Poor’s GSCI index of raw materials declined 0.2 percent as the prices of metals including copper dropped.

“A weak global growth environment and softness in commodity prices” will keep the rand on the back foot, Bruce Donald, a currency strategist at Standard Bank Group Ltd. in Johannesburg, wrote in e-mailed comments. Standard Bank sees the rand declining to 8.60 per dollar by year-end, he added.

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