South Africa Bonds Fall 1st Week in Four on Unrest; Rand Gains

South African bonds dropped, capping their first weekly decline in four as unrest in the nation’s mining industry undermined investor confidence.

Yields on the nation’s 6.75 percent bonds due March 2021 advanced 11 basis points, or 0.11 percentage point, to 6.78 percent, at 5 p.m. in Johannesburg, the highest this month on a closing basis. The rand strengthened 0.2 percent to 8.2198 per dollar, trimming this week’s decline to 0.6 percent.

Production at mines owned by Lonmin Plc, Golds Fields Ltd. and Anglo American Platinum Ltd. has been halted this week by a series of illegal strikes over pay. At least 45 people have been killed since Aug. 10 at Lonmin’s Marikana mine in the North West Province. The spreading unrest comes as South Africa posts its biggest current-account deficit in almost four years, while central banks in Europe and the U.S. pledged to take steps to shore up their economies.

“Global factors may have been positive in September, but local factors have been all negative: the mine strikes and violence and the current account deficit,” John Cairns and Josina Solomons, strategists at Rand Merchant Bank in Johannesburg, wrote in an e-mailed note today.

Finance Minister Pravin Gordhan said the violence could curb growth, production and exports, widen the current account deficit and deter investment, which would be “extremely damaging” to Africa’s largest economy.

The gap in South Africa’s current account, the broadest measure of trade in goods and services, grew to 6.4 percent in the second quarter, the widest shortfall since the third quarter of 2008, from 4.9 percent of gross domestic product, the Reserve Bank said Sept. 11.

Rand Underperforms

“The rand is definitely underperforming other risk assets,” Brigid Taylor, the head of institutional flow sales at Nedbank Group Ltd.’s investment banking unit in Johannesburg, said in an e-mailed reply to questions today. “Despite the rally seen overnight -- we are not maximizing on the positive sentiment as political and fundamental concern emanate.”

The U.S. Federal Reserve said yesterday it will expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month, and keep the federal fund rate near zero “at least through mid-2015.” The European Central Bank announced last week a program of bond-buying to combat the region’s debt crisis.

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