Yields Fall Most in 4 1/2 Years on Foreign Purchases; Rand Gains

South African bond yields declined the most since 2008 as the cost of goods leaving factories slowed and foreigners purchased more local debt than they sold. The rand gained the most out of emerging market currencies.

Foreign investors bought a net 905 million rand ($91 million) of local bonds yesterday, paring the month’s selloff to 7.8 billion rand, according to data from the Johannesburg Stock Exchange. Emerging markets rebounded after data showing the U.S. economy grew less than previously estimated, spurring speculation the Federal Reserve will hold back from reducing monetary stimulus.

“The rally is a correction of some of the huge sell-off we have seen, not just in the rand but across emerging-market currencies, equities and bonds,” Vivienne Taberer, who helps manage the equivalent of $13.5 billion in emerging-market debt and currencies at Cape Town-based Investec Asset Management, said in an e-mailed response to questions.

The rand gained 1.8 percent to 9.9309 per dollar as of 3:50 p.m. in Johannesburg, the best performer among 24 emerging market currencies monitored by Bloomberg, 20 of which gained against the U.S. currency. Yields on government debt due December 2026 fell 30 basis points, or 0.30 percentage point, to 7.85 percent, the most since December 2008 on a closing basis.

Producer Inflation

Producer-price inflation for final manufactured goods slowed to 4.9 percent from 5.4 percent in April, Statistics South Africa said on its website today. The median estimate in a Bloomberg survey was 5.2 percent. The rate of growth on the nation’s Consumer Price Index declined to 5.6 percent last month from 5.9 percent a month earlier, lower than the predicted 5.8 percent increase, the agency said June 19.

The lower-than-expected PPI and CPI data “are good news” even though the inflation outlook is clouded by the rand’s decline this year, Nedbank Group Ltd. economists including Johannes Khosa said in a note. “The Reserve Bank will continue to strike a balance between weak growth and the poor inflation outlook by maintaining its accommodative monetary policy stance well into 2014.”

South Africa’s central bank won’t necessarily raise interest rates to ward off inflationary pressures as the country’s economy remains weak, Reserve Bank Governor Gill Marcus said yesterday. Forward-rate agreements starting in four months, used to speculate on interest rates, declined for a fifth day to 5.26 percent from 5.32 percent yesterday.

The rand has weakened 15 percent this year against the dollar, the worst performance of emerging markets.

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