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S. Africa Yields Hit Four-Year Lows on Stimulus; Rand Declines

South African bonds gained for a third day, driving yields to a four-year low, on bets developed economies will extend monetary stimulus, boosting demand for higher-yielding assets. The rand depreciated.

Yields on 10.5 percent bonds due December 2026 dropped nine basis points, or 0.09 percentage point, to 7.13 percent as of 3:45 p.m. in Johannesburg, the lowest on a closing basis since January 2009. The rand traded 0.1 percent weaker at 8.5921 per dollar, a third day of losses.

Japan’s Chief Cabinet Secretary Yoshihide Suga said the next Bank of Japan governor should support bold monetary easing. The U.S. Federal Reserve has pledged to leave interest rates low until the unemployment rate eases, while European Central Bank President Mario Draghi and his board meet tomorrow after data today showed German industrial output rebounded less than economists’ expectations in November.

“The rally in yields is clearly underpinned by the search for yield by offshore investors as the driving force in the local bond market,” Deon Kohlmeyer, head of bond trading at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments today.

Foreign investors bought a net 1.17 billion rand ($136 million) of South African debt yesterday, lifting net purchases this year to 3.9 billion rand after a record 93.5 billion rand of purchases in 2012, according to Johannesburg Stock Exchange data. The country had 3.1 billion rand net sales of bonds in the same period last year.

This year “is off to a much, much stronger and bullish start than 2012,” George Glynos, a Johannesburg-based analyst at ETM Analytics, said in e-mailed comments today. “Considering the magnitude of stimulus efforts from the Fed and BoJ, and the potential for a rate cut from the ECB tomorrow, strong capital flows could continue to hit South Africa.”

South African vehicle sales expanded at the slowest pace in three years in 2012, the National Association of Automobile Manufacturers said today, fueling speculation South Africa’s central bank may cut borrowing costs this year to boost growth.

One-year interest-rate swaps, used to lock in borrowing costs, dropped 1.5 basis points today to 4.97 percent, or 14 basis points below the Johannesburg Interbank Agreed Rate.

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