Rand Bonds Soar on Citigroup Index Inclusion: Johannesburg Mover
South African bond yields tumbled the most in six weeks after Citigroup Inc. said the nation’s debt will be included in its World Government Bond Index from October.
Yields on the nation’s 6.75 percent bonds due 2021 dropped four basis points, or 0.04 percentage points, to 7.63 percent after falling as much as nine basis points in earlier trading, the most since May 2. South Africa’s currency increased as much as 1.5 percent before reversing its gains as Spain’s bailout spurred concern that the sovereign-debt crisis is spreading, trading 0.1 percent weaker at 8.3951 per dollar as of 4:18 p.m. in Johannesburg.
South African bonds, with a market value of $83 billion, will represent a 0.4 percent estimated market weight in the index, Citigroup said. Eligible bonds will also be included in the World Broad Investment-Grade Bond Index, attracting investment from funds that track the gauges.
“Some foreign investors are going to have to take a look and say: we’ve got to have a stake in South Africa,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Group Ltd. (NED), said by phone. “We’ll see inflows into the bond market, and that will also be positive for the currency.”
The nation’s bond market attracted about 18 billion rand ($2.2 billion) in net inflows since Citigroup said April 16 the country may be added to the index. South Africa’s inclusion may attract a further $7.5 billion from October, Leon Myburgh, a Johannesburg-based analyst at Citigroup, said by phone.
“A number of funds have mandated restrictions, which means they can’t invest in a country until it’s included in the index,” Myburgh said. “We should see an additional inflow to the country after it’s included. It could be over a long period of time, not necessarily concentrated.”
Spain asked euro-region governments over the weekend for as much as 100 billion euros ($126 billion) to help shore up its banking system, making it the fourth member of the currency bloc to seek a rescue. The bailout moved Italy to the frontline of the crisis, as bets increased Europe’s third largest economy may be the next to succumb.
“While news that Spain has moved one step closer to a bailout may provide some support to the rand today, we remain of the opinion that the bias for the local unit will be weakness rather than strength as events in Europe are pushed to a conclusion,” Theuns de Wet, an analyst at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “We would view any strength as temporary for now.”
The euro pared gains against the dollar and the Standard & Poor’s GSCI Index declined for a third day. The euro area is South Africa’s biggest regional trading partner, buying 22 percent of the nation’s exports, according to government data. Metals and other commodities account for 45 percent of South Africa’s exports, according to government data.
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