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South African Bonds Gain in Best Week Since September on Inflows

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Feb. 7 (Bloomberg) -- South African bonds rose, extending the biggest weekly gain since September, as lower rand volatility lured investors to the nation’s debt. The currency fell after a worse-than-forecast U.S. jobs report.

Foreign investors were net buyers of South African bonds yesterday for the second time this week, purchasing 349 million rand ($32 million), according to stock exchange data. The rand’s three-month implied volatility against the dollar dropped 162 basis points this week to 15.05 percent as options traders anticipate narrowed price swings in coming months.

“As emerging-market currencies stabilized and then gained, there has been a lot of talk that real money is returning to emerging-market assets,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in a note to clients.

Yields on benchmark rand bonds due December 2026 dropped two basis points, or 0.02 percentage point, to 8.68 percent by 5:46 p.m. in Johannesburg, the lowest on a closing basis since Jan. 27. The yield has declined 24 basis points this week, the most since the five days ending Sept. 13, according to data compiled by Bloomberg. The rand weakened 0.5 percent to 11.0852 per dollar, curbing its five-day gain to 0.3 percent.

The rand reversed an earlier advance as a Labor Department report showed U.S. employers added 113,000 jobs in January, compared with the 180,000 median estimate of economists in a Bloomberg survey.

“The view that developed markets are the only places to be may start being tested,” Vivienne Taberer, who helps manage the equivalent of more than $14 billion in fixed-income assets at Investec Plc, said by phone from Cape Town today. “Things are not that bad for emerging markets and not so good for developed markets.”

Lower currency volatility would increase carry returns on South African investments, luring investors to the rand, David Bloom, global head of currency strategy at HSBC Holdings Plc, said in an interview in Cape Town yesterday. Carry trade refers to the rate of interest earned from securities less the cost of funds borrowed to purchase them.

To contact the reporters on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net; Jaco Visser in Johannesburg at avisser3@bloomberg.net

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

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