Rand Drops to Three-Week Low as Bond Yields Rise on Fed Minutes

Jan. 4 (Bloomberg) -- The rand declined for a third day, to its weakest level in three weeks, after U.S. Federal Reserve policy makers said they will probably end debt purchases that have fueled investor demand for riskier assets.

South Africa’s currency slipped as much as 0.9 percent to 8.6700, the weakest level since Dec. 14. It traded 0.4 percent down at 8.6230 as of 4 p.m. in Johannesburg, bringing its decline in the past three days to 1.9 percent. Yields on benchmark 10.5 percent bonds due December 2026 rose nine basis points, or 0.09 percentage point, to 7.40 percent.

Fed board members said they will probably end their $85 billion monthly bond purchases in 2013, according to minutes of their Dec. 11-12 meeting released yesterday. Emerging-market stocks and commodity prices fell as the dollar strengthened versus all but two of the 16 major currencies monitored by Bloomberg.

“There seems to be opposition building to the bond-buying program and you have to ask yourself: are we going to see a pull-back?” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. “There is a slight risk-off sentiment coming through, which is affecting the rand as well.”

The Standard & Poor’s GSCI Index of raw materials declined for a second day and South Africa’s benchmark stock index dropped for the first time in three days. Metals and other commodities account for 45 percent of South Africa’s exports, according to government data.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net