The rand gained for the first time in three days as global stocks tumbled and South African bond yields at the highest in more than a year lured investors to the relative safety of debt.
Benchmark bonds due December 2026 are cheap after a surge of more than 90 basis points in the past week lifted the yield as high as 8.4 percent, according to Rand Merchant Bank. South Africa’s main stock index fell the most since May 2010. The rand’s decline to a four-year low today pushed its relative strength index over the 70 threshold that suggest the currency had weakened too much too fast and is poised for a rebound.
“We’ve seen a massive move up in bond yields in the past week, and sooner or later they would get to a level where people would start saying there is value,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by telephone. “There may be some rotation going on from equities to bonds.”
South Africa’s currency appreciated 1.2 percent to 10.0564 per dollar by 6:15 p.m. in Johannesburg after declining as much as 1.8 percent to the lowest since March 2009 earlier today. Yields on 13-year government debt dropped 11 basis points, or 0.11 percentage point, to 8.17 percent after jumping 10 basis points earlier to 8.38 percent, the highest since June 2012.
The increase in yields for 2026 bonds to above 8.3 percent brought the securities to “long-term fair value,” Rand Merchant Bank analysts including Cape Town-based Carmen Nel said in a research note today. The FTSE/JSE Africa All-Share Index tumbled 3.2 percent in line with losses in emerging-market stocks tracked by the MSCI Emerging Markets Index.
The rand’s reversal followed a depreciation that came amid concerns of a reduction in global stimulus and after an unexpected contraction in domestic mining output outweighed a rebound in manufacturing.
Mining production in Africa’s largest economy fell 0.4 percent in April from a year earlier, Pretoria-based Statistics South Africa said today. The median estimate of five economists in a Bloomberg survey was for a 0.1 percent expansion. Manufacturing rose 7 percent, beating the 2 percent median estimate, after an ArcelorMittal South Africa Ltd. steel plant resumed production.
“Today’s mining and manufacturing production figures suggest that production and exports remained under pressure into the second quarter, making any significant improvement in the current account deficit unlikely and leaving the rand still very vulnerable,” Nicky Weimar, an economist at Nedbank Group in Johannesburg, said in an e-mail.
Bank of Japan Governor Haruhiko Kuroda left stimulus efforts unchanged today, stoking speculation central banks will fail to keep the global recovery on track. Standard & Poor’s raised its outlook for the U.S.’s AA+ credit rating to stable from negative, boosting odds that the Federal Reserve will reduce stimulus that fueled demand for emerging-market assets.
Foreign investors sold a net 1.47 billion rand ($146 million) of South African bonds yesterday, adding to 4.51 billion rand of sales in the previous two trading days, according to data from JSE Ltd., which operates the country’s bourse.